Published by Global Banking & Finance Review®
Posted on January 30, 2025
3 min readLast updated: January 27, 2026
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Microsoft and Meta defend their AI spending strategies despite DeepSeek's low-cost model. They argue that significant investments are necessary to maintain a competitive edge.
By Aditya Soni and Deborah Mary Sophia
(Reuters) -Days after Chinese startup DeepSeek's breakthrough low-cost AI computing shook the U.S. technology industry, CEOs of Microsoft and Meta defended massive spending saying it was crucial to staying competitive in the new field.
DeepSeek's quick advances with models that it claimed can match or even outperform Western rivals at a fraction of the cost stirred doubts about the lead U.S. has, but the top executives said 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.
Microsoft CEO Satya Nadella said the spending would ease capacity constraints that have hampered the technology giant's ability to capitalize 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 $80 billion for AI in its current fiscal year, while Meta has pledged as much as $65 billion.
That is a far cry from the roughly $6 million DeepSeek said it has spent to develop its AI model. U.S. executives and Wall Street analysts said that is 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 frontrunner in the AI race because of its ties to industry leader OpenAI - were down 6% in early trading on Thursday after the company said growth in its Azure cloud business would miss third-quarter estimates.
"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," 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 lackluster sales forecast for the first quarter. Its shares were up more than 4% on Thursday.
"With these huge expenses, they need to turn the spigot on in terms of revenue generated, but this week was a wake-up call for the U.S.," said Futurum Group analyst Daniel Newman.
"For AI right now, there's too much capital expenditure, not enough consumption."
There are some signs that executives are aiming to keep a check on expenditure.
Microsoft CFO Amy Hood said capital spending in the third and fourth quarters would remain around the $22.6 billion, a level seen in the second quarter.
"In fiscal 2026, we expect to continue to invest against strong demand signals. However, the growth rate will be lower than fiscal 2025 (which ends in June)," she said.
(Reporting by Aditya Soni and Deborah Sophia in Bengaluru; Editing by Subhranshu Sahu and Arun Koyyur)
The article discusses Microsoft and Meta's defense of their large AI spending despite the emergence of low-cost models like DeepSeek.
They believe that significant investments in AI infrastructure are crucial for staying competitive and meeting growing corporate demands.
DeepSeek claims its AI model can match or outperform Western rivals at a fraction of the cost, challenging the current industry leaders.
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