AI Will Be a Lot Less Profitable Than Previous Tech Waves [Video]

Amazon, Microsoft, and Google spent more than $48 billion in the second quarter, mostly on data centers, according to Synergy Research Group.

Big tech companies are forecast to spend an eye-watering $1 trillion on this stuff. A lot of the capex is fueled by expectations that generative AI will be the next big tech thing after cloud computing.

The natural question that follows is this: What will the returns be on these massive AI investments?

Analysts at RBC Capital Markets came up with an early answer this week, and it’s not great.

“Long-term software gross margins will structurally be lower as a result of GenAI,” they wrote in a research note.

When software went from “on-premise,” where companies ran it on their own computers, to the cloud, where it runs on remote rented machines, gross profit margins fell from 90% to 75%, according to RBC.

The shift from cloud …

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