DeepSeek and AI burn money war-the curse of the winner!

Are AI leaders stepping into the "winner's curse"?

On February 6, Jim Reid, head of global macro research at Deutsche Bank, and his team released a report to discuss the current situation of "burning money" in the AI industry. Deutsche Bank said that recently, with the acceleration of AI capital expenditure, technology giants are in a dilemma:

The cost of losing the competition may be great, but the consequences of winning it may be even worse-the winner of huge investment may face the prospect of capital exhaustion.

In the past few weeks, the investment commitments announced by the four major technology companies show that this year's AI capital expenditure may increase by about 50%, reaching about 300 billion US dollars. Microsoft said that it will invest about 80 billion US dollars, Meta plans to spend 65 billion US dollars, Amazon will spend more than 75 billion US dollars, and Google also plans to spend about 75 billion US dollars, far exceeding market expectations.

Naturally, the market began to worry, are AI leading enterprises experiencing a "winner's curse" similar to the telecom industry in 2000, the financial crisis in 2008, or the railway industry at the end of the 19th century?

For example, in 2000, the British 3G spectrum license bid for life and death. At that time, after 150 rounds of bidding, the five companies paid a total of 22.5 billion pounds, while the government's initial revenue forecast was only 1 billion to 3 billion pounds. It is not difficult to imagine that these high-debt winners were dragged down, and the high bidding expenses made them unable to build network infrastructure. In contrast, Japan issued 3G licenses almost free of charge, and finally surpassed Britain in technology.

Perhaps, as Chuck Prince, CEO of Citigroup, famously said at the beginning of the subprime mortgage crisis in 2007:

"When the music is still playing, you have to stand up and dance, but when the liquidity dries up, the situation becomes complicated."

Can the stock price keep up with the capital expenditure?

Deutsche Bank said that up to now, the share prices of technology giants have kept pace with the growth of expenditure. However, investors are worried about DeepSeek's bright performance and the more AI capital expenditure guidelines of technology giants this year, and the market anxiety is intensifying.

Specifically, Alphabet's share price fell by 7.5% after the earnings report was released, as investors digested its high AI capital expenditure plan. Microsoft's share price also fell by 6.2% after the earnings report was released.

Meta is an exception, and its share price rose by 1.9%, because the company demonstrated that AI directly promoted advertising revenue growth by one fifth, and claimed that Meta AI has now become the number one AI assistant in the world.

Risk warning and exemption clause

The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.