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Hyperscalers Are In Hyper-investment Mode
So far, Nvidia has dominated the list of share gainers. This list is likely to broaden out as multiple others benefit from this spending.
If 2023 was the year of optimization, 2024 is the year of re-acceleration. It is also a year of aggressive investment.
This note builds on Three Reasons Why Cloud Workloads Will Accelerate LINK and the Alpha In Infrastructure LINK.
Generative AI is a once-in-a-lifetime opportunity and hyperscalers are aggressively investing well in advance to capitalize on Gen AI.
Here is what some of the best business leaders in the world are saying and doing to capitalize on AI.
Taiwan Semi is bullish on AI
All AI innovators are working with TSMC to address the insatiable AI-related demand for energy-efficient computing power.
We forecast a revenue contribution from several AI processor to more than double this year and account for low-teens percent of our total revenue in 2024.
For the next five years, we forecast it to grow at 50% CAGR and increase to higher than 20% of our revenue by 2028.
AMD is bullish on AI
We see AI as the biggest inflection point in PCs since the internet, with the ability to deliver unprecedented productivity and usability gains.
I think one of the things that we see and we've said is that the TAM for AI compute is growing extremely quickly, and we see that continuing to be the case in all conversations.
We had highlighted a TAM of, let's call it, $400 billion in 2027. I think some people thought that was aggressive at the time, but the overall AI compute needs as we talk to customers, is very, very strong.
Google is ramping up its Capex
With respect to CapEx, our reported CapEx in the first quarter was $12 billion, once again, driven overwhelmingly by investment in our technical infrastructure with the largest component for servers followed by data centers. The significant year-on-year growth in CapEx in recent quarters reflects our confidence in the opportunities offered by AI across our business.
Meta is ramping up its Capex
Overall, I view the results our teams have achieved here as another key milestone in showing that we have the talent, data, and ability to scale infrastructure to build the world’s leading AI models and services. And this leads me to believe that we should invest significantly more over the coming years to build even more advanced models and the largest scale AI services in the world.
We anticipate our full-year 2024 capital expenditures will be in the range of $35-40 billion, increased from our prior range of $30-37 billion as we continue to accelerate our infrastructure investments to support our AI roadmap. While we are not providing guidance for years beyond 2024, we expect capex will continue to increase next year as we invest aggressively to support our ambitious AI research and product development efforts.
Amazon is increasing Capex
In 2023, overall capital investments were $48.4 billion. As I mentioned, we're seeing strong AWS demand in both generative AI and our non-generative AI workloads, with customers signing up for longer deals and making bigger commitments. Still relatively early days in generative AI, and more broadly, the cloud space, and we see sizable opportunity for growth. We anticipate our overall capital expenditures to meaningfully increase year-over-year in 2024, primarily driven by higher infrastructure CapEx to support growth in AWS, including generative AI.
Lastly, Microsoft is also increasing its Capex
Capital expenditures, including finance leases were $14 billion to support our cloud demand, inclusive of the need to scale our AI infrastructure.
We expect capital expenditures to increase materially on a sequential basis, driven by cloud and AI infrastructure investments.
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The hyperscalers, aka the cloud platforms, are the workhorses for AI. Large Language Models (LLMs) are trained in the cloud. Once trained, LLMs are also deployed in the cloud for inference. At some point in the future, most Enterprise data will also reside in the cloud to be deployed to seek intelligent inferences.
As mentioned in the earlier writeups, Workloads are increasing. AI workloads are 7% out of the 31% increase on Azure. AWS and GCP, although not quantified, are benefiting from AI.
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Source: Company Filings
The hyperscalers are investing ahead of the oncoming Tsunami of AI workloads. In total, infrastructure capex from Meta, AWS, Microsoft, and Google is forecasted to increase by 54% in 2024 and another 15% in 2025. This amounts to a $62 billion increase in 2024 alone. The numbers are astronomical.
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So far, Nvidia has dominated the list of share gainers. This list is likely to broaden. More to come soon….