Just how long have people been saying “you have to spend money to make money”?

Historians maintain that this particular proverb goes all that way back to the Roman playwright Titus Maccius Plautus, who wrote comedies from roughly 205 to 184 BCE.

One of Plautus’s comedies contains a line that has been translated as — yes, indeed — “You have to spend money to make money.”

Ironically, Plautus himself was said to be a failed businessman, but he left an important message for companies looking to rake in more denari with research and development spending.

R&D for short is the process businesses use to innovate and create new or improved products, processes and services.R&D spending has led to medical breakthroughs, technological innovations, and broadly long-term economic growth. The rapid development of mRNA-based vaccines by companies like Pfizer-BioNTech and Moderna was a direct result of extensive R&D investments.The features of modern smartphones — touchscreens, GPS, and connectivity to high-speed internet — came from decades of R&D by companies like IBM, Apple and Google.

Image source: Nagle/Bloomberg via Getty Images

Amazon CEO Andy Jassy has stressed the importance of R&D spending.

TheStreet Pro’s Llanes: R&D should position a firm as market leader

“Research and development is critical for some companies more than others, depending on the opportunities they see and their ability to enhance capabilities,” said TheStreet Pro contributor Louis Llanes.

“The key is gaining a competitive advantage — whether through intellectual property, innovative service delivery, or disruptive approaches that shake up the industry with new ways of delivering products and services,” he noted.

“A company’s R&D investment should position it as a market leader or innovator, making it hard for competitors to replicate their edge while ensuring profitability.”

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As to how much a company should spend on research and development, Llanes, who hosts the “Market Call Show” podcast, said that it’s wise to measure R&D spending as a percentage of sales.

“Many successful, growth-oriented companies allocate 10% or more of their revenue to R&D, but the exact amount depends on the opportunities available, and the risks involved,” he said.

“Companies must honestly assess their ability to expand capabilities through R&D to stay competitive. If the potential for growth and market advantage exists, investing heavily in R&D can be a game-changer.”

 Llanes said companies like Robinhood, Garmin and medical-device producer Insulet are excelling in R&D right now.

Larger players like Nvidia, Adobe, Apple, Autodesk, DoorDash, Palantir, Netflix, Reddit, Spotify and Uber are also getting it right, he said, “leveraging R&D to innovate and maintain competitive advantages in their industries.”

Amazon CEO promises to invest deeply in AI

And despite a challenging economic and geopolitical situation, the tax and consulting firm EY said the world’s largest companies had continued to increase their investments in research and development.

“The research and development budgets of the 500 companies worldwide with the highest R&D expenditures increased by a total of 6% in 2024 – even though their revenue only grew by 3%,” the firm said.

Seven companies in the global top 10 with the highest innovation expenditures are based in the U.S., EY said, with Amazon AMZN posting the largest innovation budget in 2024 at $95 billion.

In his annual letter to shareholders, Andy Jassy, the e-commerce and cloud-services giant’s CEO, stressed the importance of putting money into artificial intelligence.

“Fundamentally, if your mission is to make customers’ lives better and easier every day, and you believe every customer experience will be reinvented by AI, you’re going to invest deeply and broadly in AI,” he said.

“We continue to believe AI is a once-in-a-lifetime reinvention of everything we know, the demand is unlike anything we’ve seen before, and our customers, shareholders, and business will be well-served by our investing aggressively now,” Jassy added.

Google parent Alphabet came in second with $53 billion in development expenditures. In April, CEO Sundar Pichai said the search engine giant was committed to spending some $75 billion this year to build out data-center capacity despite turmoil tied to the Trump administration’s tariffs, according to Reuters.“The opportunity with AI is as big as it gets,” he said.

Meta Platforms came in third with $48 billion in R&D outlays. The Facebook and Instagram parent has vowed to spend more than $600 billion in U.S. data centers and AI infrastructure through 2028

CEO Mark Zuckerberg touted the strength in the company’s core advertising business to justify the massive spending, in the face of investor concern about whether the expenditure would pay off, according to Reuters.”We have the capital from our business to do this,” he said.

Some companies have pulled back on R&D spending, which Llanes said can be a smart move if the return on investment is clear. But it’s a delicate balance. 

“Management must ensure that cost-cutting doesn’t undermine existing business lines or hurt profitability. Slashing expenses shouldn’t come at the cost of employee morale, service quality or production efficiency,” he said.

“For most companies, people are the biggest asset — despite advances in AI and technology, leadership, engaged employees, and stakeholders drive a company’s true value. A triple-bottom-line approach, balancing profitability with value for stakeholders and society, is crucial.

“Aggressively cutting costs in a successful, profitable business to pursue R&D can be risky and unfruitful if it disrupts what’s already working,” Llanes added.