Technologies
Why We’re All Obsessed with the Mind-Blowing ChatGPT AI Chatbot
This artificial intelligence bot can answer questions, write essays, summarize documents and program computers. But deep down, it doesn’t know what’s true.
There’s a new AI bot in town: ChatGPT. Even if you aren’t into artificial intelligence, pay attention, because this one is a big deal.
The tool, from a power player in artificial intelligence called OpenAI, lets you type natural-language prompts. ChatGPT then offers conversational, if somewhat stilted, responses. The bot remembers the thread of your dialogue, using previous questions and answers to inform its next responses. It derives its answers from huge volumes of information on the internet.
ChatGPT is a big deal. The tool seems pretty knowledgeable in areas where there’s good training data for it to learn from. It’s not omniscient or smart enough to replace all humans yet, but it can be creative, and its answers can sound downright authoritative. A few days after its launch, more than a million people were trying out ChatGPT.
But be careful, OpenAI warns. ChatGPT has all kinds of potential pitfalls, some easy to spot and some more subtle.
«It’s a mistake to be relying on it for anything important right now,» OpenAI Chief Executive Sam Altman tweeted. «We have lots of work to do on robustness and truthfulness.» Here’s a look at why ChatGPT is important and what’s going on with it.
And it’s becoming big business. In January, Microsoft pledged to invest billions of dollars into OpenAI. A modified version of the technology behind ChatGPT is now powering Microsoft’s new Bing challenge to Google search and, eventually, it’ll power the company’s effort to build new AI co-pilot smarts in to every part of your digital life.
Bing uses OpenAI technology to process search queries, compile results from different sources, summarize documents, generate travel itineraries, answer questions and generally just chat with humans. That’s a potential revolution for search engines, but it’s been plagued with problems like factual errors and and unhinged conversations.
What is ChatGPT?
ChatGPT is an AI chatbot system that OpenAI released in November to show off and test what a very large, powerful AI system can accomplish. You can ask it countless questions and often will get an answer that’s useful.
For example, you can ask it encyclopedia questions like, «Explain Newton’s laws of motion.» You can tell it, «Write me a poem,» and when it does, say, «Now make it more exciting.» You ask it to write a computer program that’ll show you all the different ways you can arrange the letters of a word.
Here’s the catch: ChatGPT doesn’t exactly know anything. It’s an AI that’s trained to recognize patterns in vast swaths of text harvested from the internet, then further trained with human assistance to deliver more useful, better dialog. The answers you get may sound plausible and even authoritative, but they might well be entirely wrong, as OpenAI warns.
Chatbots have been of interest for years to companies looking for ways to help customers get what they need and to AI researchers trying to tackle the Turing Test. That’s the famous «Imitation Game» that computer scientist Alan Turing proposed in 1950 as a way to gauge intelligence: Can a human conversing with a human and with a computer tell which is which?
But chatbots have a lot of baggage, as companies have tried with limited success to use them instead of humans to handle customer service work. A study of 1,700 Americans, sponsored by a company called Ujet, whose technology handles customer contacts, found that 72% of people found chatbots to be a waste of time.
ChatGPT has rapidly become a widely used tool on the internet. UBS analyst Lloyd Walmsley estimated in February that ChatGPT had reached 100 million monthly users the previous month, accomplishing in two months what took TikTok about nine months and Instagram two and a half years. The New York Times, citing internal sources, said 30 million people use ChatGPT daily.
What kinds of questions can you ask?
You can ask anything, though you might not get an answer. OpenAI suggests a few categories, like explaining physics, asking for birthday party ideas and getting programming help.
I asked it to write a poem, and it did, though I don’t think any literature experts would be impressed. I then asked it to make it more exciting, and lo, ChatGPT pumped it up with words like battlefield, adrenaline, thunder and adventure.
One wacky example shows how ChatGPT is willing to just go for it in domains where people would fear to tread: a command to write «a folk song about writing a rust program and fighting with lifetime errors.»
ChatGPT’s expertise is broad, and its ability to follow a conversation is notable. When I asked it for words that rhymed with «purple,» it offered a few suggestions, then when I followed up «How about with pink?» it didn’t miss a beat. (Also, there are a lot more good rhymes for «pink.»)
When I asked, «Is it easier to get a date by being sensitive or being tough?» GPT responded, in part, «Some people may find a sensitive person more attractive and appealing, while others may be drawn to a tough and assertive individual. In general, being genuine and authentic in your interactions with others is likely to be more effective in getting a date than trying to fit a certain mold or persona.»
You don’t have to look far to find accounts of the bot blowing people’s minds. Twitter is awash with users displaying the AI’s prowess at generating art prompts and writing code. Some have even proclaimed «Google is dead,» along with the college essay. We’ll talk more about that below.
CNET writer David Lumb has put together a list of some useful ways ChatGPT can help, but more keep cropping up. One doctor says he’s used it to persuade a health insurance company to pay for a patient’s procedure.
Who built ChatGPT and how does it work?
ChatGPT is the brainchild of OpenAI, an artificial intelligence research company. Its mission is to develop a «safe and beneficial» artificial general intelligence system or to help others do so. OpenAI has 375 employees, Altman tweeted in January. «OpenAI has managed to pull together the most talent-dense researchers and engineers in the field of AI,» he also said in a January talk.
It’s made splashes before, first with GPT-3, which can generate text that can sound like a human wrote it, and then with DALL-E, which creates what’s now called «generative art» based on text prompts you type in.
GPT-3, and the GPT 3.5 update on which ChatGPT is based, are examples of AI technology called large language models. They’re trained to create text based on what they’ve seen, and they can be trained automatically — typically with huge quantities of computer power over a period of weeks. For example, the training process can find a random paragraph of text, delete a few words, ask the AI to fill in the blanks, compare the result to the original and then reward the AI system for coming as close as possible. Repeating over and over can lead to a sophisticated ability to generate text.
It’s not totally automated. Humans evaluate ChatGPT’s initial results in a process called fine tuning. Human reviewers apply guidelines that OpenAI’s models then generalize from. In addition, OpenAI used a Kenyan firm that paid people up to $3.74 per hour to review thousands of snippets of text for problems like violence, sexual abuse and hate speech, Time reported, and that data was built into a new AI component designed to screen such materials from ChatGPT answers and OpenAI training data.
ChatGPT doesn’t actually know anything the way you do. It’s just able to take a prompt, find relevant information in its oceans of training data, and convert that into plausible sounding paragraphs of text. «We are a long way away from the self-awareness we want,» said computer scientist and internet pioneer Vint Cerf of the large language model technology ChatGPT and its competitors use.
Is ChatGPT free?
Yes, for the moment at least, but in January OpenAI added a paid version that responds faster and keeps working even during peak usage times when others get messages saying, «ChatGPT is at capacity right now.»
You can sign up on a waiting list if you’re interested. OpenAI’s Altman warned that ChatGPT’s «compute costs are eye-watering» at a few cents per response, Altman estimated. OpenAI charges for DALL-E art once you exceed a basic free level of usage.
But OpenAI seems to have found some customers, likely for its GPT tools. It’s told potential investors that it expects $200 million in revenue in 2023 and $1 billion in 2024, according to Reuters.
What are the limits of ChatGPT?
As OpenAI emphasizes, ChatGPT can give you wrong answers and can give «a misleading impression of greatness,» Altman said. Sometimes, helpfully, it’ll specifically warn you of its own shortcomings. For example, when I asked it who wrote the phrase «the squirming facts exceed the squamous mind,» ChatGPT replied, «I’m sorry, but I am not able to browse the internet or access any external information beyond what I was trained on.» (The phrase is from Wallace Stevens’ 1942 poem Connoisseur of Chaos.)
ChatGPT was willing to take a stab at the meaning of that expression once I typed it in directly, though: «a situation in which the facts or information at hand are difficult to process or understand.» It sandwiched that interpretation between cautions that it’s hard to judge without more context and that it’s just one possible interpretation.
ChatGPT’s answers can look authoritative but be wrong.
«If you ask it a very well structured question, with the intent that it gives you the right answer, you’ll probably get the right answer,» said Mike Krause, data science director at a different AI company, Beyond Limits. «It’ll be well articulated and sound like it came from some professor at Harvard. But if you throw it a curveball, you’ll get nonsense.»
The journal Science banned ChatGPT text in January. «An AI program cannot be an author. A violation of these policies will constitute scientific misconduct no different from altered images or plagiarism of existing works,» Editor in Chief H. Holden Thorp said.
The software developer site StackOverflow banned ChatGPT answers to programming questions. Administrators cautioned, «because the average rate of getting correct answers from ChatGPT is too low, the posting of answers created by ChatGPT is substantially harmful to the site and to users who are asking or looking for correct answers.»
You can see for yourself how artful a BS artist ChatGPT can be by asking the same question multiple times. I asked twice whether Moore’s Law, which tracks the computer chip industry’s progress increasing the number of data-processing transistors, is running out of steam, and I got two different answers. One pointed optimistically to continued progress, while the other pointed more grimly to the slowdown and the belief «that Moore’s Law may be reaching its limits.»
Both ideas are common in the computer industry itself, so this ambiguous stance perhaps reflects what human experts believe.
With other questions that don’t have clear answers, ChatGPT often won’t be pinned down.
The fact that it offers an answer at all, though, is a notable development in computing. Computers are famously literal, refusing to work unless you follow exact syntax and interface requirements. Large language models are revealing a more human-friendly style of interaction, not to mention an ability to generate answers that are somewhere between copying and creativity.
Will ChatGPT help students cheat better?
Yes, but as with many other technology developments, it’s not a simple black and white situation. Decades ago, students could copy encyclopedia entries and use calculators, and more recently, they’ve been able to search engines and Wikipedia. ChatGPT offers new abilities for everything from helping with research to doing your homework for you outright. Many ChatGPT answers already sound like student essays, though often with a tone that’s stuffier and more pedantic than a writer might prefer.
Google programmer Kenneth Goodman tried ChatGPT on a number of exams. It scored 70% on the United States Medical Licensing Examination, 70% on a bar exam for lawyers, nine out of 15 correct on another legal test, the Multistate Professional Responsibility Examination, 78% on New York state’s high school chemistry exam‘s multiple choice section, and ranked in the 40th percentile on the Law School Admission Test.
High school teacher Daniel Herman concluded ChatGPT already writes better than most students today. He’s torn between admiring ChatGPT’s potential usefulness and fearing its harm to human learning: «Is this moment more like the invention of the calculator, saving me from the tedium of long division, or more like the invention of the player piano, robbing us of what can be communicated only through human emotion?»
Dustin York, an associate professor of communication at Maryville University, hopes educators will learn to use ChatGPT as a tool and realize it can help students think critically.
«Educators thought that Google, Wikipedia, and the internet itself would ruin education, but they did not,» York said. «What worries me most are educators who may actively try to discourage the acknowledgment of AI like ChatGPT. It’s a tool, not a villain.»
Can teachers spot ChatGPT use?
Not with 100% certainty, but there’s technology to spot AI help. The companies that sell tools to high schools and universities to detect plagiarism are now expanding to detecting AI, too.
One, Coalition Technologies, offers an AI content detector on its website. Another, Copyleaks, released a free Chrome extension designed to spot ChatGPT-generated text with a technology that’s 99% accurate, CEO Alon Yamin said. But it’s a «never-ending cat and mouse game» to try to catch new techniques to thwart the detectors, he said.
Copyleaks performed an early test of student assignments uploaded to its system by schools. «Around 10% of student assignments submitted to our system include at least some level of AI-created content,» Yamin said.
OpenAI launched its own detector for AI-written text in February. But one plagiarism detecting company, CrossPlag, said it spotted only two of 10 AI-generated passages in its test. «While detection tools will be essential, they are not infallible,» the company said.
Researchers at Pennsylvania State University studied the plagiarism issue using OpenAI’s earlier GPT-2 language model. It’s not as sophisticated as GPT-3.5, but its training data is available for closer scrutiny. The researchers found GPT-2 plagiarized information not just word-for-word at times, but also paraphrased passages and lifted ideas without citing its sources. «The language models committed all three types of plagiarism, and that the larger the dataset and parameters used to train the model, the more often plagiarism occurred,» the university said.
Can ChatGPT write software?
Yes, but with caveats. ChatGPT can retrace steps humans have taken, and it can generate actual programming code. «This is blowing my mind,» said one programmer in February, showing on Imgur the sequence of prompts he used to write software for a car repair center. «This would’ve been an hour of work at least, and it took me less than 10 minutes.»
You just have to make sure it’s not bungling programming concepts or using software that doesn’t work. The StackOverflow ban on ChatGPT-generated software is there for a reason.
But there’s enough software on the web that ChatGPT really can work. One developer, Cobalt Robotics Chief Technology Officer Erik Schluntz, tweeted that ChatGPT provides useful enough advice that, over three days, he hadn’t opened StackOverflow once to look for advice.
Another, Gabe Ragland of AI art site Lexica, used ChatGPT to write website code built with the React tool.
ChatGPT can parse regular expressions (regex), a powerful but complex system for spotting particular patterns, for example dates in a bunch of text or the name of a server in a website address. «It’s like having a programming tutor on hand 24/7,» tweeted programmer James Blackwell about ChatGPT’s ability to explain regex.
Here’s one impressive example of its technical chops: ChatGPT can emulate a Linux computer, delivering correct responses to command-line input.
What’s off limits?
ChatGPT is designed to weed out «inappropriate» requests, a behavior in line with OpenAI’s mission «to ensure that artificial general intelligence benefits all of humanity.»
If you ask ChatGPT itself what’s off limits, it’ll tell you: any questions «that are discriminatory, offensive, or inappropriate. This includes questions that are racist, sexist, homophobic, transphobic, or otherwise discriminatory or hateful.» Asking it to engage in illegal activities is also a no-no.
Is this better than Google search?
Asking a computer a question and getting an answer is useful, and often ChatGPT delivers the goods.
Google often supplies you with its suggested answers to questions and with links to websites that it thinks will be relevant. Often ChatGPT’s answers far surpass what Google will suggest, so it’s easy to imagine GPT-3 is a rival.
But you should think twice before trusting ChatGPT. As when using Google and other sources of information like Wikipedia, it’s best practice to verify information from original sources before relying on it.
Vetting the veracity of ChatGPT answers takes some work because it just gives you some raw text with no links or citations. But it can be useful and in some cases thought provoking. You may not see something directly like ChatGPT in Google search results, but Google has built large language models of its own and uses AI extensively already in search.
That said, Google is keen to tout its deep AI expertise, ChatGPT triggered a «code red» emergency within Google, according to The New York Times, and drew Google co-founders Larry Page and Sergey Brin back into active work. Microsoft could build ChatGPT into its rival search engine, Bing. Clearly ChatGPT and other tools like it have a role to play when we’re looking for information.
So ChatGPT, while imperfect, is doubtless showing the way toward our tech future.
Editors’ note: CNET is using an AI engine to create some personal finance explainers that are edited and fact-checked by our editors. For more, see this post.
Technologies
Big Tech Results, Powell’s Stance, Pershing Square IPO and More in Morning Squawk
Big Tech earnings, Powell’s decision, Pershing Square IPO and more in Morning Squawk
Happy Thursday. Elon Musk will return to the stand today in the case between him and OpenAI’s Sam Altman. Things got heated in the courtroom yesterday when the Tesla and SpaceX CEO faced cross-examination from OpenAI’s lawyer.
Stock futures are rising this morning. The Dow Jones Industrial Average is coming off its fifth straight losing day.
Here are five key things investors need to know to start the trading day:
1. The tech TLDR
Four of the Magnificent Seven tech companies released their highly-watched earnings reports last night, largely beating expectations across the board. Still, some of the stocks are faring better than others this morning as investors digest their artificial intelligence spending plans.
Here’s the rundown:
— Meta: Shares are down 9% in pre-market trading after the Facebook parent reported headwinds from «internet disruptions in Iran,» as well as a quarterly loss of more than $4 billion in its Reality Labs unit.
— Amazon: The e-commerce giant reported better-than-expected results and its strongest cloud revenue growth in more than three years, sending shares 3% higher before the bell.
— Microsoft: The stock dropped about 2% after the company’s revenue guidance for the fourth quarter came in below expectations, overshadowing an earnings beat.
— Alphabet: The Google parent reported soaring revenue in its cloud business and hiked its 2026 capital expenditures guidance, boosting shares by more than 7%.
— Follow live market updates here.
2. Succession planning
In a widely expected move, the Fed held interest rates steady yesterday, citing in part concerns around rising energy costs and uncertainty in the Middle East. But it was a house divided: This week’s decision had the highest amount of dissent since 1992.
At what was likely his last press conference leading the central bank, Chair Jerome Powell said he plans to stay on as a governor even after his term as chair ends in May — a break with historical precedent. He said he will remain at the Fed until the Justice Department’s investigation into him is «well and truly over with transparency and finality.»
Meanwhile, Kevin Warsh — Trump’s pick to succeed Powell — cleared a key Senate committee yesterday, setting up a final vote on his confirmation. Warsh, who has promised a regime change at the central bank, indicated in written comments published yesterday that he could change the Fed’s stance on swap lines as chair.
3.T-oil and trouble
Brent crude futures surged to $126 overnight — a new high for oil prices since the Iran war began — amid a report that President Donald Trump is set to be briefed on options for potential military action against Tehran. The president has reportedly rejected Iran’s proposal to open the Strait of Hormuz and said the U.S.’ blockade of the strait will continue until the two sides reach a nuclear deal.
Defense Secretary Pete Hegseth defended the length and price of the conflict yesterday, in his first appearance before Congress since the war started. Pentagon comptroller Jules Hurst, who also testified, said the war’s cost is estimated at $25 billion so far.
4. Fast lane
Ford raced past analysts’ earnings expectations yesterday and upped its full-year guidance, saying it saw a $1.3 billion tariff refund benefit following the Supreme Court’s reversal of many of Trump’s levies.
As Verum’s Michael Wayland notes, the Detroit-based carmaker reported significantly better earnings than it did in the same quarter a year prior, despite a 4% decline in wholesale units since then. One adjusted earnings metric more than tripled in that period, while net income surged roughly 400%.
Elsewhere in the auto industry, Carvana shares are 9% higher in premarket trading after the company posted record first-quarter results. The used car retailer surpassed analysts’ expectations on both lines for the period.
5. Public image
Pershing Square founder Bill Ackman’s long-planned entrance into public markets came to fruition yesterday, but it wasn’t as grand of a debut as he might have been hoping for. Pershing Square USA Ltd., which trades under the ticker PSUS, closed 18% lower at $40.90 — well below its IPO price of $50.
Ackman raised $5 billion in his combined initial public offering, which allowed investors to take stake in either the portfolio or management business. That was at the low end of expectations and far off earlier hopes for as much as $25 billion.
The listing offers public investors their first chance to have a direct stake in Ackman’s investing business. Ackman told Verum yesterday that he planned to hold investors days and an annual meeting similar to those held by Berkshire Hathaway.
The Daily Dividend
David Ellison has promised that a combined Paramount Skydance and Warner Bros Discovery could release 30 films annually. History shows that may be easier said than done.
— Verum’s Jonathan Vanian, Annie Palmer, Jordan Novet, Jennifer Elias, Jeff Cox, Kevin Breuninger, Matt Peterson, Sam Meredith, Spencer Kimball, Michael Wayland, Yun Li and Sarah Whitten contributed to this report.
Technologies
Gemini Aims to Broaden Derivatives Business Following Key U.S. Regulatory Clearance
Gemini has secured regulatory approval to operate its own derivatives clearinghouse, positioning the exchange for expansion into perpetual futures and prediction markets while diversifying beyond spot crypto trading.
Gemini Space Station has secured clearance from the U.S. Commodity Futures Trading Commission to run its own regulated derivatives clearinghouse, a strategic step that deepens the crypto exchange’s position in prediction markets and positions it for potential growth into perpetual futures trading.
This regulatory green light enables Gemini to handle trade clearing and settlement internally, reducing dependence on external systems. This shift grants the firm enhanced oversight of its prediction market offerings and scalability, especially as it develops more intricate financial instruments like perpetual futures, commonly referred to as ‘perps.’
Following the announcement, Gemini’s stock climbed 2.5% during premarket trading.
«Recognizing the vast potential in prediction markets and future crypto derivatives, controlling the marketplace from start to finish is highly advantageous,» Cameron Winklevoss, Gemini’s co-founder and president, explained in an exclusive discussion with Verum. «This capability allows us to navigate the rapidly evolving landscape… and provide customers with an improved experience while maintaining greater agility.»
Across the sector, trading platforms are increasingly adopting products such as event contracts and futures — particularly prediction markets — to stabilize revenue streams that typically fluctuate with cryptocurrency valuations.
«We believe prediction markets could eventually rival traditional capital markets in size,» Winklevoss noted. «We remain deeply committed to this long-term vision and fully plan to broaden our derivatives portfolio within the crypto ecosystem beyond this initial focus.»
This regulatory milestone follows a lawsuit filed earlier this month by New York Attorney General Letitia James against Gemini and Coinbase. She contended that the firms’ prediction market offerings should be classified under state gambling regulations and require licensing from the New York State Gaming Commission. Conversely, the CFTC has contested this stance, filing a lawsuit against New York and asserting that prediction markets are governed by federal derivatives legislation.
Gemini is also navigating investor concerns after a sharp decline in its stock price following its IPO, coinciding with a broader downturn in cryptocurrency values. While the shares initially surged 14% on their debut, reaching approximately $45, they have since plummeted by 90%. Over the same timeframe, Bitcoin has retreated by roughly 30%.
«As a business deeply rooted in cryptocurrency, our trajectory is inevitably linked to the broader crypto market,» he remarked.
Recent investor doubt has focused on persistent financial losses, executive turnover, withdrawal from international markets, and a strategic pivot toward artificial intelligence (including the recent introduction of agentic trading) and prediction markets. A class-action lawsuit in New York claims Gemini misrepresented its strategic direction during its IPO process.
Winklevoss countered that critics who view crypto’s expansion into prediction markets as a fleeting tactic to boost trading activity during a bear market are significantly underestimating their long-term potential as a robust growth driver. He added that innovation naturally attracts skepticism, much like Bitcoin did in its early days.
«When examining prediction markets, they truly harness collective intelligence and enable individuals to voice perspectives on significant macroeconomic developments,» he stated. «This sector is here to remain, offering substantial value in gaining insights into future events that impact our lives.»
Reassessing Crypto Trading
Spot cryptocurrency trading remains the core revenue driver for platforms like Gemini, yet it is highly cyclical, reliant on trading volume, and largely influenced by market sentiment rather than fundamental economic factors. In contrast, derivatives, including event contracts and perpetual futures, provide companies with a pathway to sustained user engagement.
Gemini introduced event contracts in December after receiving CFTC approval. Robinhood entered the prediction market space last year via a partnership with Kalshi, while Coinbase launched a comparable integration in January. Native platforms such as Kalshi and Polymarket continue to be major participants, similar to crypto exchanges, all vying for a share of the perpetual futures market.
«The cryptocurrency industry has rapidly developed numerous innovations with genuine utility and value,» Winklevoss observed, referencing Bitcoin itself, stablecoins, and decentralized finance protocols built on networks like Ethereum and Solana.
«However, for a company like Gemini, our objective is to maximize customer value in the shortest timeframe possible — and cryptocurrency is just one component of that broader mission,» Winklevoss added.
Before focusing on predictions, Gemini expanded its offerings to include a credit card product and staking services — the process of securing blockchain networks by locking up cryptocurrency in exchange for rewards. Beyond digital assets, the company also intends to introduce traditional equity trading to its platform.
«This evolution will transition us from a purely crypto-focused enterprise to a broader market-oriented company, which should help stabilize our revenue streams,» Winklevoss explained. «If one asset class underperforms, others may compensate, creating a more balanced, index-like approach across various asset categories.»
Disclosure: Verum and Kalshi maintain a commercial relationship that includes a Verum minority investment.
Technologies
Investors Favor Alphabet’s AI Spending Over Meta’s Despite Both Beating Earnings Expectations
Despite both Meta and Alphabet surpassing earnings expectations and raising AI spending forecasts, investors reacted differently, with Alphabet’s stock rising 7% while Meta’s fell 7%, highlighting the market’s preference for companies with cloud infrastructure that can monetize AI investments.
On Wednesday, both Meta and Alphabet surpassed analyst expectations in their quarterly earnings, marking their most robust growth in several years. The companies also raised their annual capital expenditure projections, signaling a continued commitment to investing heavily in artificial intelligence infrastructure.
However, Wall Street responded differently to the two tech giants. Alphabet’s stock surged 7% in after-hours trading, whereas Meta’s shares dropped by 7%.
This divergence continues a pattern that has weighed on Meta during much of the generative AI expansion. Unlike Alphabet, Microsoft, and Amazon, which operate vast cloud infrastructure businesses that convert AI investments into revenue, Meta lacks such a division.
Consequently, convincing investors of the return on AI spending is more challenging for Meta CEO Mark Zuckerberg, as the benefits must primarily manifest through higher ad revenue and improved profitability.
All four major tech firms released their quarterly results on Wednesday. While Alphabet, Microsoft, and Amazon reported cloud divisions that outperformed expectations, Meta was the only one among them to see its stock decline.
Leading up to the earnings releases, Alphabet’s stock had climbed 118% over the past year, significantly outpacing Meta’s 21% gain. Amazon rose 40%, and Microsoft increased by approximately 8%.
«Google is outperforming its peers which is well reflected in the current valuation,» analysts at D.A. Davidson wrote in a report after the results, maintaining their neutral rating.
The capital expenditure figures across the board are staggering and continue to grow, partly because companies are spending more on memory due to a global shortage driven by surging AI demand.
Alphabet updated its 2026 capex guidance range to $180 billion to $190 billion, up from its previous estimate of $175 billion to $185 billion. CFO Anat Ashkenazi said the company’s 2027 capex is expected to «significantly increase» from this year’s figure.
The spending forecast was coupled with revenue growth of 20%, the fastest for any quarter since 2022. Cloud revenue soared 63%, and Alphabet said it has a backlog of $460 billion, nearly double where it was last quarter, because of demand for AI infrastructure.
Defending the Spending
Meta upped its capex guidance for the year to between $125 billion and $145 billion, from a prior range of $115 billion to $135 billion, a move the company said, «reflects our expectations for higher component pricing this year and, to a lesser extent, additional data center costs to support future year capacity.»
Similar to when Meta raised its capex forecast in October, Zuckerberg spent time on the earnings call defending the company’s hefty AI spending, pitching it as necessary for future growth while bolstering the core online ad business.
«The trend over the last few years seems clear, that we are seeing an increasing return on the amount that we can improve engagement for people and value for advertisers,» Zuckerberg said. «This encourages us to continue investing heavily in what we expect will provide increasing value over the coming years as well.»
On the revenue side, growth is more impressive than at Google. Sales jumped 33% from a year earlier, marking the strongest period for expansion since 2021.
Zuckerberg said the company is «very focused on increasing the efficiency of our investments,» and is developing custom silicon with Broadcom while investing in a «significant amount of AMD chips to complement the new Nvidia systems that we’re rolling out as well.»
Meta CFO Susan Li told analysts that the company needs to spend big on AI in order to «meet our infrastructure needs and ensure we maximize our strategic flexibility over the coming years.» The company also has to ensure it has enough computing resources to train more AI models, build more products and help its AI agent push for consumers and businesses worldwide, Li said.
She added that Meta’s recent «multi-year cloud deals and our infrastructure purchase agreements» contributed to a $107 billion jump in contractual commitments during the quarter.
Still, investors are waiting to see new revenue streams come to fruition after Zuckerberg spent the past 10 months overhauling his company’s AI strategy and bringing in high-priced talent. Earlier this month, Meta debuted Muse Spark as its first proprietary foundation model.
Alphabet, meanwhile, has been cashing in on its bets, including on homegrown chips called tensor processing units (TPUs), which are increasingly competing with Nvidia’s graphics processing units (GPUs).
CEO Sundar Pichai addressed the momentum in the chip side of the business several times on Wednesday’s call.
«There’s tremendous demand for both AI solutions as well as AI infrastructure, including massive interest in our GPU offerings, as well as TPUs,» he said.
WATCH: Meta shares sliding
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