AI Lesson for Microsoft and Google: Spend Money to Make Money

This illustration picture shows icons of Google's AI (Artificial Intelligence) app BardAI (or ChatBot) (C-L), Open AI's app ChatGPT (C-R) and other AI apps on a smartphone screen in Oslo, on July 12, 2023. (Photo by OLIVIER MORIN / AFP)
This illustration picture shows icons of Google's AI (Artificial Intelligence) app BardAI (or ChatBot) (C-L), Open AI's app ChatGPT (C-R) and other AI apps on a smartphone screen in Oslo, on July 12, 2023. (Photo by OLIVIER MORIN / AFP)
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AI Lesson for Microsoft and Google: Spend Money to Make Money

This illustration picture shows icons of Google's AI (Artificial Intelligence) app BardAI (or ChatBot) (C-L), Open AI's app ChatGPT (C-R) and other AI apps on a smartphone screen in Oslo, on July 12, 2023. (Photo by OLIVIER MORIN / AFP)
This illustration picture shows icons of Google's AI (Artificial Intelligence) app BardAI (or ChatBot) (C-L), Open AI's app ChatGPT (C-R) and other AI apps on a smartphone screen in Oslo, on July 12, 2023. (Photo by OLIVIER MORIN / AFP)

Artificial intelligence is expected to pay off big for tech giants including Microsoft and Alphabet someday. But expect deeper investments before gains trickle to the bottom line, the companies said on Tuesday.
Microsoft said costs rose sharply as it built new data centers to support AI and that capital expenditures will continue to rise as it buys chips from the likes of Nvidia Corp to power those data centers, Reuters said.
The Windows maker's shares were down more than 4% in premarket trading on Wednesday, while Alphabet gained nearly 7%.
Microsoft is bearing AI costs in two ways, analysts said: to power its own products such as its forthcoming $30-a-month Copilot AI assistant, and to serve companies wanting to use its Azure cloud computing services to create AI products.
Microsoft executives said the service will start generating the bulk of its revenue in the second half of its fiscal 2024 ending June 30.
"They're buying a bunch of H100s," said Ben Bajarin, chief executive and principal analyst of Creative Strategies, referring to Nvidia's flagship chips for AI.
"You're probably going to see a similar thing with Amazon , if not this quarter then the next quarter, because both of them are the clouds that the vast majority of the market is using for training (AI systems) right now."
Alphabet, however, kept down costs, though not for long. Chief Financial Officer Ruth Porat, who will become president and chief investment officer, said delays in data center construction are why second-quarter capex was lower than expected.
"As far as AI is concerned, while Google may have spent upwards of $200 billion on AI investments over the past decade, much of that isn't necessarily appreciated by users and investors," said Scott Kessler, global sector lead for technology media and telecommunications at Third Bridge.
One advantage Google has, analysts said, is that it has its own custom chip for handling AI work called the Tensor Processor Unit (TPU), which helps lower costs.
Microsoft may be "aggressively buying Nvidia chips, given Microsoft does not have its own silicon as an alternative," said Atlantic Equities analyst James Cordwell.
But Google conceded that it will buy chips from other companies as well as using its own, and Porat said that spending could put a drag on profit and growth.
"The message on inflection point was the same," from Microsoft and Google, said Gene Munster, managing partner at Deepwater Asset Management, "but the difference was Microsoft investors wanted to see more."



US Supreme Court Upholds Law Banning TikTok If It’s Not Sold by Its Chinese Parent Company

A person live streams to their TikTok followers as the high justices rule to uphold a ban on the video-sharing app TikTok in the TikTok vs. Merrick Garland case in Washington, DC, USA, 17 January 2025. (EPA)
A person live streams to their TikTok followers as the high justices rule to uphold a ban on the video-sharing app TikTok in the TikTok vs. Merrick Garland case in Washington, DC, USA, 17 January 2025. (EPA)
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US Supreme Court Upholds Law Banning TikTok If It’s Not Sold by Its Chinese Parent Company

A person live streams to their TikTok followers as the high justices rule to uphold a ban on the video-sharing app TikTok in the TikTok vs. Merrick Garland case in Washington, DC, USA, 17 January 2025. (EPA)
A person live streams to their TikTok followers as the high justices rule to uphold a ban on the video-sharing app TikTok in the TikTok vs. Merrick Garland case in Washington, DC, USA, 17 January 2025. (EPA)

The Supreme Court on Friday unanimously upheld the federal law banning TikTok beginning Sunday unless it's sold by its China-based parent company, holding that the risk to national security posed by its ties to China overcomes concerns about limiting speech by the app or its 170 million users in the United States.

A sale does not appear imminent and, although experts have said the app will not disappear from existing users' phones once the law takes effect on Jan. 19, new users won't be able to download it and updates won't be available. That will eventually render the app unworkable, the Justice Department has said in court filings.

The decision came against the backdrop of unusual political agitation by President-elect Donald Trump, who vowed that he could negotiate a solution and the administration of President Joe Biden, which has signaled it won't enforce the law beginning Sunday, his final full day in office.

Trump, mindful of TikTok’s popularity, and his own 14.7 million followers on the app, finds himself on the opposite side of the argument from prominent Senate Republicans who fault TikTok’s Chinese owner for not finding a buyer before now. Trump said in a Truth Social post shortly before the decision was issued that TikTok was among the topics in his conversation Friday with Chinese leader Xi Jinping.

It’s unclear what options are open to Trump once he is sworn in as president on Monday. The law allowed for a 90-day pause in the restrictions on the app if there had been progress toward a sale before it took effect. Solicitor General Elizabeth Prelogar, who defended the law at the Supreme Court for the Democratic Biden administration, told the justices last week that it's uncertain whether the prospect of a sale once the law is in effect could trigger a 90-day respite for TikTok.

“Congress has determined that divestiture is necessary to address its well-supported national security concerns regarding TikTok’s data collection practices and relationship with a foreign adversary,” the court said in an unsigned opinion, adding that the law “does not violate petitioners' First Amendment rights.”

Justices Sonia Sotomayor and Neil Gorsuch filed short separate opinions noting some reservations about the court's decision but going along with the outcome.

“Without doubt, the remedy Congress and the President chose here is dramatic,” Gorsuch wrote. Still, he said he was persuaded by the argument that China could get access to “vast troves of personal information about tens of millions of Americans.”

Some digital rights groups slammed the court’s ruling shortly after it was released.

“Today’s unprecedented decision upholding the TikTok ban harms the free expression of hundreds of millions of TikTok users in this country and around the world,” said Kate Ruane, a director at the Washington-based Center for Democracy & Technology, which has supported TikTok’s challenge to the federal law.

Content creators who opposed the law also worried about the effect on their business if TikTok shuts down. “I’m very, very concerned about what’s going to happen over the next couple weeks,” said Desiree Hill, owner of Crown’s Corner mechanic shop in Conyers, Georgia. “And very scared about the decrease that I’m going to have in reaching customers and worried I’m going to potentially lose my business in the next six months.”

At arguments, the justices were told by a lawyer for TikTok and ByteDance Ltd., the Chinese technology company that is its parent, how difficult it would be to consummate a deal, especially since Chinese law restricts the sale of the proprietary algorithm that has made the social media platform wildly successful.

The app allows users to watch hundreds of videos in about half an hour because some are only a few seconds long, according to a lawsuit filed last year by Kentucky complaining that TikTok is designed to be addictive and harms kids' mental health. Similar suits were filed by more than a dozen states. TikTok has called the claims inaccurate.

The dispute over TikTok's ties to China has come to embody the geopolitical competition between Washington and Beijing.

“ByteDance and its Chinese Communist masters had nine months to sell TikTok before the Sunday deadline,” Sen. Tom Cotton, R-Ark., wrote on X. “The very fact that Communist China refuses to permit its sale reveals exactly what TikTok is: a communist spy app. The Supreme Court correctly rejected TikTok’s lies and propaganda masquerading as legal arguments.”

The US has said it’s concerned about TikTok collecting vast swaths of user data, including sensitive information on viewing habits, that could fall into the hands of the Chinese government through coercion. Officials have also warned the algorithm that fuels what users see on the app is vulnerable to manipulation by Chinese authorities, who can use it to shape content on the platform in a way that’s difficult to detect.

TikTok points out the US has not presented evidence that China has attempted to manipulate content on its US platform or gather American user data through TikTok.

Bipartisan majorities in Congress passed legislation and Biden signed it into law in April. The law was the culmination of a yearslong saga in Washington over TikTok, which the government sees as a national security threat.

TikTok, which sued the government last year over the law, has long denied it could be used as a tool of Beijing. A three-judge panel made up of two Republican appointees and a Democratic appointee unanimously upheld the law in December, prompting TikTok’s quick appeal to the Supreme Court.

Without a sale to an approved buyer, the law bars app stores operated by Apple, Google and others from offering TikTok beginning on Sunday. Internet hosting services also will be prohibited from hosting TikTok.

ByteDance has said it won’t sell. But some investors have been eyeing it, including Trump’s former Treasury Secretary Steven Mnuchin and billionaire businessman Frank McCourt. McCourt’s Project Liberty initiative has said it and its unnamed partners have presented a proposal to ByteDance to acquire TikTok’s US assets. The consortium, which includes “Shark Tank” host Kevin O’Leary, did not disclose the financial terms of the offer.

McCourt, in a statement following the ruling, said his group was “ready to work with the company and President Trump to complete a deal.”

Prelogar told the justices last week that having the law take effect “might be just the jolt” ByteDance needs to reconsider its position.