Capital Ideas™ 
Investment insights from Capital Group

Categories
Chart in Focus
Tech giants ratchet up spending in AI race
Mihir Mehta
Equity Investment Analyst
May 8, 2024

The artificial intelligence (AI) capital expenditure (capex) race is kicking into high gear. Rapid developments in AI are requiring massive spending from large technology companies. Alphabet (Google) and Meta are among firms leading the charge on foundational AI research. The tech giants are investing tens of billions of dollars to get AI to "inference,” or use a trained model, and to build cloud-hosted infrastructure for AI enterprises. Forecast at $189 billion in 2024, four technology giants would account for 21% of the total capex in the S&P 500 Index, up from 4% a decade ago. Over the next three years, this group is estimated to spend $500 billion as the AI race heats up.


Big Tech leads capex charge

The bar chart shows capital expenditures from Alphabet, Amazon, Meta and Microsoft from 2014 to 2025, where 2024 and 2025 are estimates. The figures represent the companies' capex as a percentage of the total S&P 500 Index capital expenditures in each year. The percentages from 2014 to 2025 are as follows: 4%, 4%, 5%, 7%, 10%, 11%, 16%, 19%, 19%, 16%, 21% and 23%, respectively.

Source: FactSet. Data for Alphabet, Amazon, Meta and Microsoft as of May 1, 2024, with 2024 and 2025 forecasts based on analyst consensus. 

Meta recently raised its 2024 capital expenditure forecast to a range of $35 billion to $40 billion for AI infrastructure — a 38% increase year over year. Alphabet and Microsoft also signaled plans to enhance their AI capabilities, raising their annual capex forecasts by 91% and 66%, respectively.


Revenues and earnings have been robust for the large tech firms, supported by high cash flows, enabling them to meaningfully increase their capex. These companies predict AI will permeate all aspects of life and enterprise. Thus, they race ahead to build, despite bottlenecks in chip design, procurement and energy. While they would like to vertically integrate and develop their own AI processors, catching up to semiconductor firms, including Nvidia, Broadcom and Micron, won’t be easy. Until they do, chip companies remain in an advantageous position for continuing the AI buildout.


Mihir Mehta is an equity investment analyst at Capital Group with 10 years of investment industry experience (as of 12/31/2023). He holds an MBA from Stanford Graduate School of Business and bachelor's degrees in economics and international studies from Johns Hopkins University graduating magna cum laude. 

Learn more about
Chart in Focus
Artificial Intelligence
Semiconductors
U.S. Equities
Technology & Innovation

S&P 500 Index is a market capitalization-weighted index based on the results of approximately 500 widely-held common stocks.

Our latest insights

RELATED INSIGHTS

Don’t miss out

Get the Capital Ideas newsletter in your inbox every other week

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.
All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.
Use of this website is intended for U.S. residents only.
On or around July 1, 2024, American Funds Distributors, Inc. will be renamed Capital Client Group, Inc.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.