Microsoft and Meta Defend Massive AI Spending After DeepSeek's Breakthrough

Microsoft and Meta CEOs have defended their massive investments in artificial intelligence despite the recent emergence of a Chinese AI competitor, DeepSeek, which has made significant progress in the field at a fraction of the cost.

This comes after DeepSeek's breakthrough in affordable AI computing technology sent shockwaves through the US technology industry, raising questions about America's dominance in the sector.

On Wednesday, both Microsoft and Meta executives emphasized the necessity of substantial investment in AI infrastructure to meet growing corporate demands.

"Investing 'very heavily' in capital expenditure and infrastructure is going to be a strategic advantage over time," Meta CEO Mark Zuckerberg said on a post-earnings call, as reported by Reuters.

Satya Nadella, CEO of Microsoft, echoed this sentiment, stating that investment was crucial to overcome capacity constraints that had hindered the company's ability to fully capitalize on AI. "As AI becomes more efficient and accessible, we will see exponentially more demand," he said during a call with analysts.

Microsoft has allocated $80 billion to AI in its current fiscal year, while Meta has pledged up to $65 billion. This contrasts sharply with the approximately $6 million DeepSeek claims to have spent on developing its AI model. US tech executives and Wall Street analysts attribute this disparity to the significant capital expenditure on computing power, rather than the overall development costs.

However, some investors are expressing growing impatience with the substantial spending and the lack of substantial returns on investment.

Microsoft's share price dropped by 5% in extended trading after the company announced that growth in its Azure cloud business for the current quarter would fall short of estimates.

"We really want to start to see a clear road map to what that monetization model looks like for all of the capital that's been invested," said Brian Mulberry, portfolio manager at Zacks Investment Management, which holds Microsoft shares.

Meta, meanwhile, sent mixed signals about the success of its AI investments. While the company reported a strong fourth quarter, its sales forecast for the current period was lackluster.

"With these huge expenses, they need to turn the spigot on in terms of revenue generated, but I think this week was a wake-up call for the U.S.," said Futurum Group analyst Daniel Newman, to Reuters. "For AI right now, there's too much capital expenditure, not enough consumption."

Despite these concerns, there are signs that executives are taking steps to address them. Microsoft CFO Amy Hood indicated that the company's capital spending in the current and next quarter will remain around the $22.6 billion level seen in the second quarter. However, she also noted that "In fiscal 2026, we expect to continue to invest against strong demand signals. However, the growth rate will be lower than fiscal 2025 (which ends in June)."