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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
In the prisoner’s dilemma, individuals who would do best by co-operating instead turn on one another, with less than optimal results. Something like that is playing out on a grand scale as giant technology companies such as Google parent Alphabet and Meta Platforms, both reporting earnings this week, duke it out for supremacy in artificial intelligence.
These so-called hyperscalers, part of a group that also includes Microsoft and Amazon, have gone all-in on servers and data centres used for cloud computing and large language models. By 2026 the foursome will have amassed nearly $1tn in capital expenditure over five years, based on consensus estimates from Visible Alpha.
Alphabet on Tuesday gave hints that the spending is tentatively paying off. Revenue grew by a forecast-beating 15 per cent year on year, and its cloud business expanded by 35 per cent. Alphabet chief Sundar Pichai says a quarter of Google’s new code is now written by AI.
But while this technological shift is lifting revenue, it’s also raising tensions. New technologies tend to be winner-takes-most: look no further than Google’s 90 per cent share of online search. There’s no reason to think generative AI will be different.
That makes peaceful cohabitation increasingly difficult. Facebook owner Meta, for example, is cooking up its own search engine to be less reliant on Google, The Information has reported. Mark Zuckerberg’s company is also giving away some large language models for free, in a challenge to rivals such as OpenAI. As billions of dollars of funding pour into upstarts like Elon Musk’s xAI or Google challenger Perplexity, the industry’s cortisol levels go ever higher.
AI is also breathing new life into old rivalries. Microsoft on Monday accused Google of using “shadowy” lobbying tactics to gain an advantage for its cloud business, which runs a distant third to Microsoft’s and Amazon’s, and distract from broader threats to its search and digital advertising businesses. Such disputes are familiar — a decade ago Microsoft ran privacy-themed ads warning Gmail users were being “Scroogled” — but the stakes are higher.
Supremacy is worth fighting for. The rents from creating an omnipotent AI, often called “artificial general intelligence”, are limitless. Even at more modest levels of achievement, the spoils are great. McKinsey reckons that cloud computing could create $3tn of extra pre-tax profit for companies worldwide.
Money will be incinerated in pursuit of this goal. Executives admit as much: Zuckerberg and Pichai concede they’d rather spend too much than too little. That makes sense if the victor will indeed grind all others into the dirt, making past investment seem like a trifle. Alphabet hasn’t yet proved it’s that winner, but its AI-enhanced growth shows it’s not yet a loser.
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