Bank of America notes that the AI capital expenditure among hyperscale enterprises remains unchanged and is not impacted by DeepSeek, although monetization remains weak. Historically, companies in reinvestment cycles have underperformed. Major tech firms like Microsoft (MSFT, Financial), Meta Platforms (META), Amazon (AMZN), and Alphabet (GOOGL) are expected to increase their capital spending by $34 billion by 2025, marking a 13% growth this year. Their total capital expenditure is projected to reach approximately $290 billion, a year-over-year increase of over 34%.
According to Ohsung Kwon, a strategist at Bank of America Securities, this indicates that the AI capital expenditure cycle remains unaffected by DeepSeek, though it reminds us of the bear market experienced by AI semiconductors. The ongoing AI competition with China continues to pose risks, weakening cost-cutting options for major tech companies since 2022/2023.
So far, 234 companies have reported capital expenditure growth of over 3%, excluding the "big seven" tech firms such as Apple (AAPL), Microsoft, Alphabet, Amazon, NVIDIA (NVDA), Meta Platforms, and Tesla (TSLA), with total capital spending rising over 23% year-over-year. The ratio of capital expenditure guidance above and below market expectations remains strong at 1.67. However, this ratio may decline if company growth stagnates.
Kwon also highlighted that the market is increasingly concerned about the gap between hyperscale enterprises' capital expenditures and their monetization capabilities. As the capital expenditure cycle progresses, profit margins are expected to be impacted. Meta Platforms is the only company that has seen a stock price increase due to earnings.
