By Anna Tong, Aditya Soni and Deborah Mary Sophia

(Reuters) -Major tech companies including Microsoft and Meta are stepping up spending to build AI data centers to meet massive demand, but Wall Street is hungry for a quicker payday than the billions of dollars invested.

Microsoft and Meta said Wednesday that capital expenses have increased due to investments in artificial intelligence. Alphabet also said Tuesday that those expenses will remain high.

Amazon, which will announce the results on Thursday, is likely to repeat these predictions.

Intensive capital expenditures could threaten these companies’ high margins, and the pressure on profitability is likely to spook investors.

Big Tech shares fell in premarket trading Thursday; This has highlighted the challenges companies face as they try to balance their ambitious AI pursuits with the need to reassure investors that they are focused on short-term results.

Despite the highest profit and revenue expectations for the July-September period, shares of Meta and Microsoft fell 4%. Amazon also fell 1.4%.

“AI technology is expensive to run. It’s expensive to get capacity,” said GlobalData analyst Beatriz Valle.

“It has become a competitive race among big technology companies to build capacity. It will take time to see returns, to see widespread adoption of the technology.”

Microsoft’s capital spending in a single quarter is more than its annual spending through fiscal 2020, according to Visible Alpha. Meta’s spending is a quarter of what they spent in a year until 2017.

Microsoft said capital spending rose 5.3% to $20 billion in the first fiscal quarter and predicted AI spending would increase in the second fiscal quarter.

But it warned that growth at Azure, its main cloud business, would likely slow and blamed capacity constraints at data centres.

“I think what investors are missing is that Microsoft overinvesting year after year — like this year — creates a full percentage point drag on margins for the next six years,” said Gil Luria, DA’s head of technology research. Davidson.

Meanwhile, Meta warned that there will be a “significant acceleration” in AI-related infrastructure spending next year.

BOTTLENECKS PREVENT GROWTH

Capacity constraints are rippling through the tech industry.

Chipmakers, including AI powerhouse Nvidia, are struggling to keep up, making it difficult for cloud companies to build capacity.

Announcing results earlier this week, Advanced Micro Devices said demand for AI chips was growing much faster than supply, limiting its ability to capitalize on the order surge. He warned that the supply of artificial intelligence chips will be limited going into next year.

Despite the concerns, Meta and Microsoft said it is still very early in the AI ​​cycle and emphasized the long-term potential of AI.

The investments are reminiscent of a time when Big Tech built its cloud businesses and expected customers to adopt the technology.

“Building the infrastructure may not be something investors want to hear about in the near term, but I think the opportunities here are really big,” Meta CEO Mark Zuckerberg said on Wednesday’s earnings call. “We will continue to invest significantly in this.”

(Reporting by Anna Tong in San Francisco and Aditya Soni and Deborah Sophia in Bengaluru; Editing by Sayantani Ghosh, Sonali Paul and Saumyadeb Chakrabarty)