Big Tech's Capex Is Half of Wall Street's Profit Growth
3 hours ago
- Goldman Sachs forecasts $1.2 trillion in hyperscaler capital expenditure for 2026, a 50% increase from 2025, with $1.4 trillion projected by 2028.
- Nearly half of S&P 500 earnings per share growth in 2025 came from AI-related spending, and a $250 billion deviation in capex could shift earnings growth by 6 percentage points.
- The earnings boost from AI investment is tied to the growth rate of spending; as capex growth slows from 94% to 50%, depreciation expenses will increasingly offset profits, potentially turning AI investment into a net drag by 2028.
- Big Tech booked roughly $150 billion in unrealized gains from private-company equity stakes in Q2 2025, temporarily inflating S&P 500 earnings by 12%.
- Hyperscalers need approximately $300 billion in annual AI revenue to break even on their investments, but current cloud revenue above the pre-AI trend is only about $70 billion annually.
- For hyperscalers to achieve adequate returns, AI users would need to spend roughly $1 trillion per year on AI applications—about two-thirds of global software spending.
- Goldman’s base case is a slowdown in earnings growth, not a collapse, with S&P 500 EPS expected to grow ~11% annually in 2027 and 2028, supported by AI productivity gains.