Big Tech's Massive Spend Is Masking a Slowdown in Capex Growth

The article discusses the disparity in capital expenditure (capex) growth between the seven largest companies in the S&P 500 Index, known as the "Magnificent Seven," and the rest of the index. These top companies have significantly increased their spending on property and equipment, with a 40% rise in 2024, compared to a mere 3.5% increase by the other companies. This trend highlights a growing divide in corporate America, as the Magnificent Seven continue to drive the index's growth with expected earnings jumps of 34% in 2024, while the rest of the S&P 500 is projected to see only a 5% rise in profits.

The article also touches on the broader economic context, noting concerns about the return on investment in artificial intelligence by big tech firms, and the impact of geopolitical tensions, such as tariffs and trade wars, on capex decisions. The cost of capital has risen, making companies cautious about large investments, especially amid uncertainties like inflation and international trade disputes. This environment has led to a cautious approach to capex among the majority of companies, contrasting with the aggressive spending by the Magnificent Seven.

Key takeaways:

The seven biggest companies in the S&P 500, known as the Magnificent Seven, are significantly increasing their capital expenditures, while the rest of the index shows minimal growth.
Despite high spending on capital expenditures and R&D, companies outside the Magnificent Seven are underperforming in the stock market.
Concerns about the return on investment in AI technologies are rising, especially after a Chinese startup developed a competitive AI model at a lower cost.
Trade uncertainties, including tariffs and geopolitical tensions, are contributing to cautious capital expenditure decisions among companies.

Big Tech's Massive Spend Is Masking a Slowdown in Capex Growth

Key takeaways:

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