Investors shift focus to long-term returns from Big Tech AI spending

Asset managers are shifting focus to long-term returns from Big Tech AI spending, betting that hyperscalers will grow profits faster than they spend, with the biggest tech companies on track to add roughly $340 billion to annual operating cash flow by 2027. AI-related capital spending by Big Tech is projected to hit $635 billion to $665 billion by 2026, and AI monetization needs to increase 5x to 13x to justify the capex plans, according to wealth managers. Richard Clode of Janus Henderson predicts hyperscalers will grow profits and cash flow faster than incremental capex by 2028.

Via fortune.com Investors shift focus to long-term returns from Big Tech AI spending Asset managers are looking past massive capital expenditure numbers and betting that hyperscalers will grow profits faster than they spend Wall Street spent the better part of two years throwing money at anything with “AI” in the pitch deck. Now the hangover is setting in, and investors are asking a decidedly more boring question: when does all this spending actually make money? The answer, according to major asset managers, is that the biggest tech companies are on track to collectively add roughly $340 billion to their annual operating cash flow by 2027. That’s the kind of number that makes even the most eye-watering capital expenditure plans look reasonable, if you squint hard enough and extend your time horizon. The capex reckoning Big Tech’s AI-related capital spending is projected to hit somewhere between $635 billion and $665 billion by 2026. To put that in perspective, global AI investments across all sectors are expected to exceed $1 trillion by that same year. The hyperscalers, Amazon, Microsoft, Alphabet, and Meta, are writing the checks that define the entire industry’s infrastructure buildout. Recent earnings reports from Microsoft and Amazon reinforced the narrative that demand for cloud services remains intense, with capacity constraints still limiting how fast these companies can grow. Richard Clode of Janus Henderson predicts hyperscalers will grow profits and cash flow faster than their incremental capex by 2028. That’s the crucial inflection point investors are now underwriting. Hyperscaler stocks have lagged behind a 75% rise in the Philadelphia Semiconductor Index during the most recent earnings season. Chip companies, which sell the shovels in this particular gold rush, have been rewarded more generously than the companies actually digging. Valuations suggest room to run Current forward multiples for the major hyperscalers range from 17.6x for Meta to 24.6x for Microsoft. Both figures represent a discount compared to their historical highs. The neocloud wildcards CoreWeave has gained roughly 50% in recent months, and Nebius has surged more than 200%, both riding a wave of AI capacity shortages and premium pricing power. These neocloud providers, essentially specialized GPU cloud platforms, have benefited from the simple fact that demand for AI compute currently outstrips supply. The risk for these companies is straightforward. As hyperscalers bring new capacity online, the pricing power that drove those rallies may evaporate. The monetization gap AI monetization needs to increase somewhere between 5x and 13x to justify the capital expenditure plans these companies have announced, according to wealth managers who’ve done the math on what needs to happen for current spending to pencil out. The bull case says that’s entirely plausible given AI adoption is still in early innings across most industries. Enterprise customers are running pilots, not production workloads, and the transition from experimentation to deployment could unlock the kind of revenue growth that makes $635 billion in capex look like a bargain. Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy https://cryptobriefing.com/editorial-policy/ .