U.S. Tech Giants’ AI Spending to Hit $700 billion
Rapid AI advancement and increasing adoption are driving robust demand for computing capacity and pushing US data Centre hyperscalers to invest heavily, Moody’s said in a note.
The global ratings agency revealed the expectation that total capital expenditures for the six US hyperscalers — Microsoft Corp., Amazon.com, Inc., Amazon Web Services (AWS), Meta Platforms, Inc, Alphabet Inc., Oracle Corporation, and CoreWeave, Inc would increase to $700 billion this year.
The projected capital spending amount is nearly 6x their 2022 spending, according to Moody’s. Analysts said the investments are accelerating revenue growth, but eroding historically strong free cash flow of these tech giants and prompting higher borrowing.
Hyperscaler capex soaring and on a multiyear growth trajectory. “We expect capital spending to increase 81% to about $700 billion this year, nearly 6x the level in 2022, the year ChatGPT was introduced”.
Moody’s projected that capex will grow further to $820 billion next year, with potential for upward revisions. It said these investments are driving a surge of growth across the data centre supply chain, including semiconductors, IT hardware, power generation, construction and cooling equipment.
Spending level unprecedented, but AI demand continues to outpace supply. The entire industry remains capacity constrained because demand for computing capacity to train new AI models and support exploding growth in inferencing and agentic applications exceeds supply.
Moody’s said the lack of readily available electricity for data centers and the time it takes to build them will constrain AI capacity, which we expect will lag demand through 2027
A long payback period for AI investments clouds investor sentiment. The gap is widening between how hyperscalers and some investors view these companies’ AI investments, with bond spreads increasing and median equity prices declining.
Hyperscalers perceive underinvestment in AI as an existential threat, while some investors worry that aggressive spending could lead to overbuilding and weaker returns, according to the note.
Moody’s stated that the large upfront capital spending required to meet AI demand is putting pressure on credit metrics. “While debate about returns will likely persist, emerging revenue growth and backlog conversion trends should allay some concerns about these investments”.
Higher capital intensity and debt levels could lead to a reassessment of creditworthiness if strong profit growth fails to materialise. The era of AI buildout has increased capital intensity for leading technology companies.
These companies had long operated with solid profitability and lower capex, affording them ample financial flexibility. “We believe this dynamic has changed for good and is affecting credit, prompting us to lower our outlook on two of these companies.
The risks will increase if strong profit growth from these investments fails to materialise”, Moody’s said. U.S. Tech Giants’ AI Spending to Hit $700 billion GCR Revises GLNG Funding SPV Rating Outlook to Negative
