ChatGPT was released in late-2022 and almost immediately ignited a capex surge reminiscent of the late-1990s. Spending by the top three hyperscalers had increased steadily from 2017 but then rose by a significant 53% in 2024 with the trio forecasting a 27% increase in 2025 (Figure 1). Similar to the internet boom, capex is soaring even though it is unclear when there will be a return to the massive amounts of capital being invested.
Tech leadership is fully committed to AI because they rightly view it as a highly disruptive, general-purpose technology that will be the key driver of their free cash flow (FCF) over the next decade. The tech titans realize they face an existential risk in that falling behind in the AI race means their market leadership is likely to atrophy, and they could ultimately go the way of Kodak and Blockbuster. That is, their choice is to spend massively, and to some extent recklessly, or risk fading into obscurity.
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