The artificial intelligence (AI) race is pushing big tech’s capital spending to new heights.
Cloud giants like Amazon, Microsoft, and Google are ramping up their investments in data centres, custom chips, and AI infrastructure to stay ahead in the cloud and AI boom.
But which of the biggest players are spending the most, and is it leading to stronger returns? Plus, can cloud growth keep up with spending and what does all this mean for NVIDIA – the AI juggernaut that’s powering much of this expansion.
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Investment boom
2025 is shaping up to be a big year for investments in AI infrastructure.
Despite some talk that advanced AI models might lower spending needs, companies are planning a significant boost in their 2025 investment budgets – to the tune of an extra $100bn across the four biggest players.
This strong push in spending highlights the belief that to stay ahead, companies need to build better and more powerful systems. These investments are all about ensuring they have the right equipment and capacity to handle larger amounts of data and more complex tasks.
With the growing importance of cloud services and data centres, the future of AI depends on having the right tools in place.
Rather than cutting back, they’re doubling down on their commitment to innovation, hoping these investments will pay off as AI continues to drive new opportunities and reshape industries.
The benefits extend beyond the four names here. The cloud giants enable other businesses to access accelerated computing power, and with more broad access, we expect to see the benefits feed through to a whole host of businesses.
Can they afford it?
It’s been a while since we’ve seen such a unified effort to spend money from the biggest names in the world. One key question investors should be asking is can they afford it?
In simple terms, the answer is yes. They’re making enough money from their operations to comfortably cover these big investment plans.
Instead of borrowing heavily or risking their financial stability, these companies are using their own funds to invest in better data centres and advanced technology. Their strong cash flows give them the flexibility to keep up with the rapid pace of innovation, without compromising on growth.
In a rapidly evolving industry, having a strong cash flow relative to spending ensures that companies are well-prepared to seize new opportunities and continue driving progress in AI.
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The returns dilemma
Are companies generating the revenue needed to justify heavy investment in AI – not just for the big names, but across the entire market?
Right now, we look to be in a bit of a lumpy period where investment in AI is racing ahead of new products and innovative ways of working. This means that while companies are spending big to build the future, the immediate returns might not always be clear.
We think the one often-overlooked benefit of AI is its potential to lower operating costs. As companies streamline processes and boost efficiency, these cost savings can contribute to better overall profits, even if revenue growth isn’t yet catching up with the increased spending.
If we look at the profit dynamics for the US market as a whole, we think there are early signals that these efficiency gains are starting to yield results.
The returns dilemma is a genuine question mark right now – one that investors should keep a close eye on as the market evolves.
Where are the opportunities?
It’s hard to discuss major AI investments and not think about NVIDIA, whose chips are the backbone of a lot of the buildout we’re seeing.
Of that $100bn in additional capex expected over 2025, we expect a good chunk to make its way to NVIDIA to get its latest hardware.
There are challenges though, from custom and more specialised chips to new innovation in the large language model space (think ChatGPT) that suggest less computing power could be needed in the future.
We see continued scope for the major US tech names to benefit from AI –whether it’s the cloud giants servicing demand from other businesses to the likes of Meta using AI to improve its advertising model.
But we also think investors should look beyond the big names as the benefits of AI make their way through a whole host of businesses. We would encourage investors to have a think about how other businesses are using this new technology.
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