Alphabet Inc. Class C (GOOGL.US) DeepMind executives warn: AI revenue cannot support $700 billion in capital expenditures, but RSI will change everything.

Alphabet Inc. Class C (GOOGL.US) DeepMind executive Jagmeet Singh said that the massive investments in AI-related capital expenditures by the tech industry are a prelude to the next phase of AI. The next phase of AI is referred to as "Recursive Self-Improvement" (RSI), which essentially means that AI is capable of automatically creating better versions of itself. For years, this concept has been considered part of Artificial General Intelligence (AGI), but the tech industry, especially in the corporate sector, has started using the term RSI in recent weeks. Singh stated that the revenue generated from AI "currently cannot sustain the capital expenditures we are incurring." However, Singh added that it "seems unwise" to have a pessimistic outlook on the current and future technologies of the tech industry, pointing out that the early signs of RSI have already emerged. He further remarked that this should not come as a surprise, as "the steam engine was originally designed to create the next generation of steam engines." Nonetheless, Singh, who joined Alphabet Inc. Class C from Bridgewater Associates in April of this year, did indicate that there may be an "AI air pocket," meaning that expenditures have occurred but revenues have not yet materialized. He likened the anticipated construction scale, which is expected to exceed $400 billion in spending by 2025 and potentially surpass $700 billion in 2026, to projects larger than the Apollo moon landing program, the Manhattan Project, and the scale of Internet infrastructure in the 1960s. Major hyperscale companies, including Alphabet Inc. Class C, Amazon.com, Inc. (AMZN.US), Microsoft Corporation (MSFT.US), and Meta Platforms (META.US), have repeatedly indicated that they expect capital expenditures in 2027 to be higher than those in 2026. Later last month, Alphabet Inc. Class C raised its capital expenditure forecast for 2026 again, now projecting spending to be between $195 billion and $205 billion, up from earlier estimates of $180 billion to $190 billion.