Even though DeepSeek is inexpensive, Microsoft and Meta support significant AI expenditure

The CEOs of Microsoft and Meta justified large expenditure, arguing that it was essential to remaining competitive in the new area, only days after Chinese company DeepSeek’s breakthrough low-cost AI computing rocked the U.S. technology industry.

The rapid development of DeepSeek’s models, which it claimed could match or even surpass Western competitors at a fraction of the cost, raised questions about the United States’ competitive advantage, but the company’s top executives insisted that expanding computer networks was required to meet expanding business demands.

“Investing very heavily in capital expenditure and infrastructure is going to be a strategic advantage over time,” Mark Zuckerberg, CEO of Meta, stated on a call following the company’s earnings.
The expenditure, according to Microsoft CEO Satya Nadella, would alleviate capacity limitations that have hindered the tech behemoth’s ability to leverage AI.
“We will see exponentially more demand as AI becomes more efficient and accessible,” he stated on a call with investors.

In the current fiscal year, Microsoft has set aside $80 billion on AI, while Meta has committed up to $65 billion.
That pales in comparison to the approximately $6 million DeepSeek claimed to have invested in creating its AI model. That is the amount spent on processing power, not total development expenses, according to Wall Street analysts and U.S. executives.
Nevertheless, given the high expenses and lack of significant returns, some investors appear to be growing impatient.

Following the announcement that growth in its Azure cloud business would fall short of third-quarter projections, Microsoft’s shares, which are largely seen as a frontrunner in the AI race due to its affiliations with industry leader OpenAI, fell 6% in early trading on Thursday.
Zacks Investment Management portfolio manager Brian Mulberry stated, “We really want to start to see a clear roadmap to what that monetization model looks like for all of the capital that’s been invested.” Zacks Investment Management owns Microsoft stock.
With a solid fourth quarter but a poor first-quarter sales estimate, Meta, on the other hand, issued conflicting signals about how its investments in AI-powered products were paying off. On Thursday, the company’s stock was up almost 4%.

“This week was a wake-up call for the U.S., but they need to turn the spigot on in terms of revenue generated with these huge expenses,” Daniel Newman, an analyst at Futurum Group, said.
“For AI right now, there’s too much capital expenditure, not enough consumption.”
There are indications that CEOs are trying to control spending.
According to Amy Hood, the CFO of Microsoft, capital expenditures in the third and fourth quarters will stay close to the $22.6 billion level observed in the second quarter.
“We anticipate continuing to spend in fiscal 2026 despite robust demand indicators. But compared to fiscal 2025, which concludes in June, the growth rate would be slower,” she stated.