CAPEX is a risk factor, but it is not as serious at the moment as its size suggests. The key to understanding the current market mechanism is not the equity market behavior, but the debt market. Regardless of alarmist headlines and analyses, the demand for debt issued by hyperscalers is enormous, and its cost is low.
The largest tech companies (mostly) still have high credit ratings, massive profits, and reserves accumulated over decades of growth. For the debt market, AI investments are currently an opportunity, not a threat.
The self‑propelling AI machine. Why will tech giants’ spending only increase?
This demand is likely to persist for a long time, and it will be supported by further record profits, revenues, and margins. As long as hyperscalers show growth each quarter, especially in the cloud and AI space, the stream of money into CAPEX will remain deep and wide. Moreover, given the growth rate of this key segment, CAPEX could grow even faster and more than markets currently price it – without short‑ and medium‑term harm to the companies.
But why is there confidence that the phenomenal profit growth rate will be maintained, even under the pressure of massive spending? Because both are the same.
CAPEX investments are hundreds of billions of dollars poured into the market. Every dollar of CAPEX creates a dollar for the supplier and a dollar for the supplier’s supplier… In the end, demand for hardware and software and real, tangible gains in AI efficiency and adoption in enterprises create further waves of demand. Demand that later fuels record profits at earnings conferences.
Debt finances CAPEX, CAPEX generates demand, and demand allows for more debt. It is a mechanical, not conditional, relationship. This creates a self‑propelling mechanism. Hyperscalers raise capital and increase CAPEX.
As long as each of these three elements stays in place, it is very difficult to expect real declines – even in the face of, for example, another war in the Persian Gulf.
