Weekly Buzz: Tech’s big spending spree

17 May 2024

It’s still early days for AI. Naturally, there will be unanswered questions – with a big one being how much companies will spend on the technology. The capital expenditure (capex) plans of some of the world’s biggest spenders in tech might shed some light.

How much is the tech sector planning to spend?

To keep up with surging demand for cloud infrastructure – the servers and data centres which form the backbone of AI – companies have to spend big.

Morgan Stanley's 'Cloud Capex Tracker' predicts 44% spending growth year-over-year in 2024 for the market's biggest players (think Microsoft, Meta, and Alphabet), far outpacing the 26% forecasted just a couple of months ago.

And it’s not a one-time spending spree. Morgan Stanley predicts global capex on cloud infrastructure will reach US$300 billion by 2030 – with US$230 billion spent on semiconductors and US$70 billion on hardware. Here are some of the big spenders’ plans:

  1. Microsoft’s capex was US$14 billion in the first quarter of 2024, and the company expects it to rise significantly next year.
  2. Alphabet, Google’s parent, said its quarterly capex will match or exceed the first quarter’s US$12 billion, suggesting an increase of at least 50% compared to last year.
  3. Meta’s planning to spend as much as US$40 billion this year to support its AI roadmap. The company expects this to be the beginning of a multi-year cycle of investments.

As an investor, what does this mean for me?

While the AI landscape is still evolving, the billions being poured in signal a belief in its transformative potential. These investments will benefit companies across the AI supply chain. That’s partly why Nvidia has been moving sharply higher, as traders raise their expectations ahead of its quarterly earnings report.

If you’re looking to invest in AI’s potential, our Technology Enablers Thematic portfolio might be a good fit. It’s a portfolio that’s designed to diversify your exposures across emerging core technologies, including AI, semiconductors, cloud computing, robotics, and the blockchain. 

📰 In Other News: An earnings season that’s exceeding expectations

The US stock market saw a significant upswing last week, driven by a robust first-quarter earnings season – of the 459 companies in the S&P 500 that have reported their results, about 79% have beaten profit expectations. The S&P 500 is now up by about 10% year-to-date.

Major moves from tech companies have also added to the momentum, with Alphabet's inaugural dividend announcement and Apple's massive US$110 billion stock buyback program

Earnings set the tone for markets – especially for the volatile tech sector. With tech giants repeatedly surpassing earnings forecasts, analyst projections for 2024 have been adjusted upward, indicating continued confidence in these sectors. Conversely, companies that don't meet expectations can face sharp price corrections.

These articles were written in collaboration with Finimize.

🎓 Simply Finance: Capital expenditure (Capex)

Capital expenditure, or capex for short, is the money a company spends to buy, maintain, or upgrade its long-term assets. These investments into infrastructure, equipment and technology are meant to help the business grow or create new products and services.

Unlike operating expenses like wages, capex involves bigger purchases that will benefit the company for years to come. Think of it as a company investing in its own future by acquiring the tools it needs to succeed in the long run.

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