ChatGPT turns 15 months old in February and AI growth is still going strong.
In Microsoft’s latest earnings, CFO Amy Hood said that AI services boosted the growth of its Cloud services segment by six points.
That’s twice as much as the previous quarter, and six times as much as the quarter before that.
What’s making the difference here?
In simple terms, customers are beginning to use AI services.
Last year, the Seattle company worked to deploy its solutions to customers. This year, it is seeing usage increase as customers find use cases for its AI-powered solutions.
And we are just getting started.
Trillion-dollar dreams
Sitting in the middle of the AI revolution is Nvidia (NASDAQ: NVDA).
Expectations are sky-high at the graphics processing unit (GPU) maker after revenue more than tripled in 2023’s third quarter (3Q’23), backed by a 279% increase in data centre revenue.
The high demand for GPUs was echoed by Meta Platform’s (NASDAQ: META) CEO Mark Zuckerberg who said that his company intends to have around 350,000 GPUs and about 600,000 GPU equivalents by the end of this year.
Here’s the thing: Zuckerberg is not alone in his view.
There is increasing evidence that data centre spending is expected to rise.
For instance, Microsoft’s capital expenditure (capex) rose by almost 57% year on year to nearly US$20 billion for the six months before 31 December 2023.
What’s more, the Seattle tech giant expects spending to be “materially higher” in the current quarter.
Meanwhile, Alphabet (NASDAQ: GOOGL), the parent company of Google, spent over US$32 billion in 2023 on capex with the majority going to servers and data centres.
Similar to Microsoft, the search engine giant expects its capex to be “notably larger” in 2024.
To top it off, the CEO of ChatGPT creator OpenAI Sam Altman is rumoured to be raising US$7 trillion dollars in a bid to reshape the sector.
But before you get carried away, there is one more thing you should know.
The hype cycle
It’s easy to be caught up in the hype surrounding the sector.
On this note, Nvidia CEO Jensen Huang has downplayed the alleged US$7 trillion figure touted by the financial media.
It’s not to say he isn’t bullish on demand.
Huang suggested that the cost of building AI data centres around the world will increase to US$2 trillion by 2029.
Here’s the thing: if the CEO of Nvidia, one of the biggest beneficiaries of the AI revolution, is playing down the hype, we should sit up and take notice.
Historically, technology trends undergo what is known as a hype cycle, popularised by Gartner (NYSE: IT).
There is little doubt that Generative AI and its ilk is receiving a lot of attention from the media.
Yet, amid all the hype, there are use cases and results we cannot ignore.
As investors, we are focused on finding real use-cases where AI is making a meaningful impact.
We have shared a number of examples before:
- Back in February 2023, Microsoft said its GitHub Copilot for Business, a tool to help developers write code, is used by over 400 organisations as of 14 February 2023. On average, 46% of code is built using Copilot across all programming languages.
- A month later, Adobe (NASDAQ: ADBE) released FireFly, its own AI image generator.
- Then, four months ago in November 2023, Meta reported that revenue from its AI-powered Advantage+ Shopping Campaigns had exceeded a US$10 billion annual run-rate.
The above is just a small sample of what we are seeing.
Get Smart: Real-life investing, not hype
Over the next month, we will be putting together a special report which will detail all the latest AI developments for our Smart All Star subscribers.
Previously, we had already outlined six predictions for the Generative AI (GenAI) trend as part of our service.
We also organised a 30-minute in depth discussion over the most promising use cases and emerging test cases which we see across multiple companies.
There are detailed updates we have on the most promising companies implementing GenAI.
Again, we are interested in real use cases.
Are we really ready to live in a world with AI that could potentially take over our jobs? Check out our latest Special Free Report on this fascinating topic. We cover the latest developments in AI and how they could impact your life and investments. Click here to download a copy now.
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Disclosure: Chin Hui Leong owns shares of Adobe, Alphabet, Intuit, Meta Platforms, and Microsoft.
