Microsoft, Meta chiefs justify spending as DeepSeek undercuts AI model pricing

Days after Chinese upstart DeepSeek revealed a breakthrough in cheap AI computing that shook the US technology industry, the CEOs of Microsoft and Meta defended massive spending that they said was key to staying competitive in the new field.

DeepSeek’s quick progress has stirred doubts about the lead the US has in AI with models that it claims can match or even outperform Western rivals at a fraction of the cost, but the US executives said on Wednesday that building huge computer networks was necessary to serve growing corporate needs.

“Investing ‘very heavily’ in capital expenditure and infrastructure is going to be a strategic advantage over time,” Meta CEO Mark Zuckerberg said on a post-earnings call.

Satya Nadella, CEO of Microsoft, said the spending was needed to overcome the capacity constraints that have hampered the technology giant’s ability to capitalise on AI.

“As AI becomes more efficient and accessible, we will see exponentially more demand,” he said on a call with analysts.

Microsoft has earmarked $80bn for AI in the financial year, while Meta has pledged as much as $65bn towards the technology.

That is a far cry from the roughly $6m DeepSeek said it has spent to develop its AI model. US tech executives and Wall Street analysts said that reflects the amount spent on computing power, rather than all development costs.

Still, some investors seem to be losing patience with the hefty spending and lack of big payoffs.

Shares of Microsoft — widely seen as a front-runner in the AI race because of its tie to industry leader OpenAI — were down 5% in extended trading after the company said that growth in its Azure cloud business in this quarter would fall short of estimates.

“We really want to start to see a clear road map to what that monetisation model looks like for all of the capital that’s been invested,” said Brian Mulberry, portfolio manager at Zacks Investment Management, which holds shares in Microsoft.

Meta, meanwhile, sent mixed signals about how its bets on AI-powered tools were paying off with a strong fourth quarter but a lacklustre sales forecast for this period.

“With these huge expenses, they need to turn the spigot on in terms of revenue generated, but I think this week was a wake-up call for the US,” said Futurum Group analyst Daniel Newman.

“For AI right now, there’s too much capital expenditure, not enough consumption.”

There are some signs though that executives are moving to change that.

Microsoft CFO Amy Hood said the company’s capital spending in this quarter and the next would remain around the $22.6bn level seen in the second quarter.

“In financial 2026, we expect to continue to invest against strong demand signals. However, the growth rate will be lower than financial 2025 (which ends in June),” she said.

Reuters