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Today, we are looking at the ginormous amount of money spent on research & development (R&D) by the Big Tech companies.

But first, what kinds of costs are classified as “R&D”

R&D costs is mainly the money spend by companies to develop new products and services. For example, engineering costs related to writing code for the new iPhone.
Tech companies have a lot of employees with high salaries (e.g. software engineers) A lot of these employees work on writing code for new products / services and their salaries are counted as “R&D costs”. This is a big driver of R&D cost being high.
Apart from Tech, another industry where R&D costs are high is pharmaceuticals. E.g. Merck & Co. spent $12.2B (25% of Revenue) on R&D in 2021.

Tech is a very competitive industry, and often, these costs are essential for companies to find their next breakthrough revenue source (e.g. AWS for Amazon,= or the iPhone)

These 5 companies, spent a total of $190 billion in last 12 months on R&D.

Couple of interesting observations from the chart above:

Amazon spends more money on R&D, than Google and Apple combined. I was shocked to see this! However, Amazon is known to place a lot of new bets and this costs reflect that.
Meta is investing heavily in R&D, relative to its size. While it has always been a big spender on R&D, this has ramped up recently with its pivot into the Metaverse

A big question for investors to answer is if these high costs are justified and if (or when) will they bear fruit in finding new growth avenues for companies.

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Amazon spent ~$68B on R&D