Aswath Damodaran: Big Tech Has No Idea How AI Pays Off

Massive capital expenditure in AI by Big Tech companies lacks clear, articulated business models, creating significant market uncertainty. These firms have transitioned from capital-light software businesses to capital-intensive, manufacturing-like operations, requiring a rigorous focus on return on invested capital. Much of the reported AI revenue is circular, as hyperscalers fund startups like OpenAI and Anthropic, which then reinvest those funds into the hyperscalers' own compute infrastructure. This reliance on intra-company financing and unrealized gains in AI startups inflates net income and distorts traditional valuation metrics. While Apple maintains a distinct, low-CapEx strategy, its peers face mounting pressure to prove that AI investments will generate sustainable end-user revenue rather than merely building out redundant architecture. Without transparent, long-term business narratives, these companies risk a correction as the market increasingly questions the viability of current AI spending levels.