By Daniel McGarvey, CFA on behalf of Stonebridge Financial Group advisors
The largest technology companies have been pouring hundreds of billions of dollars into artificial intelligence (AI) for years, and the trend is expected to continue for the foreseeable future. As shown below, the major cloud computing companies that own and operate data centers expect nearly twice as much annual capital spending (capex refers to capital expenditures/spending) next year as they had last year, with these expenditures comprising over half of their operating cash flow.
Source of graph: J.P.Morgan Asset Management
These tech juggernauts are clearly in an AI arms race, and they see considerably more danger in underinvesting than in overinvesting. How much this spending has contributed to gross domestic product (GDP) is difficult to determine exactly, but investment in information processing equipment and software has contributed more to real GDP growth than consumer spending has so far in 2025. Without it, growth would likely look rather sluggish. It is also worth noting that increased capital expenditures are typically associated with increased hiring, but in this environment payroll gains have been weakening.
AI spending has been the trend driving stock market growth as well, as evidenced by NVIDIA’s ascent to become the world’s first $4 trillion company or the fact that the Magnificent Seven (NVIDIA, Microsoft, Apple, Amazon, Meta, Alphabet, and Tesla) have accounted for over half of S&P 500 returns over the last three years.
The million (or trillion) dollar question is whether AI can deliver productivity gains that would justify such tremendous levels of spending. Wall Street appears to believe that the answer is yes, and there are some prominent use cases already, but it could take many years to find out just how transformational the technology is. Until then, the money thrown towards its development will likely continue to have a sizable economic impact.
The S&P 500 rose for the fourth month in a row with a return of 2% in August. The Bloomberg US Aggregate Bond Index rose 1.2% as markets repriced to expect a rate cut in September and the 10-Year Treasury Rate fell from 4.37% to 4.23%.
Material discussed is meant for general/informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions.
Source of Three Charts Below: YCharts
September 2025 Commentary: Capital Spending on AI
By Daniel McGarvey, CFA on behalf of Stonebridge Financial Group advisors
The largest technology companies have been pouring hundreds of billions of dollars into artificial intelligence (AI) for years, and the trend is expected to continue for the foreseeable future. As shown below, the major cloud computing companies that own and operate data centers expect nearly twice as much annual capital spending (capex refers to capital expenditures/spending) next year as they had last year, with these expenditures comprising over half of their operating cash flow.
Source of graph: J.P.Morgan Asset Management
AI spending has been the trend driving stock market growth as well, as evidenced by NVIDIA’s ascent to become the world’s first $4 trillion company or the fact that the Magnificent Seven (NVIDIA, Microsoft, Apple, Amazon, Meta, Alphabet, and Tesla) have accounted for over half of S&P 500 returns over the last three years.
The million (or trillion) dollar question is whether AI can deliver productivity gains that would justify such tremendous levels of spending. Wall Street appears to believe that the answer is yes, and there are some prominent use cases already, but it could take many years to find out just how transformational the technology is. Until then, the money thrown towards its development will likely continue to have a sizable economic impact.
The S&P 500 rose for the fourth month in a row with a return of 2% in August. The Bloomberg US Aggregate Bond Index rose 1.2% as markets repriced to expect a rate cut in September and the 10-Year Treasury Rate fell from 4.37% to 4.23%.
Material discussed is meant for general/informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions.
Source of Three Charts Below: YCharts
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