Investor's Favorite: Where Are AI Expenses Going?

New York - This week, spending updates from megacap companies in the U.S. that are making significant investments in artificial intelligence might have a major impact on the record-level U.S. stock rally. AI trading has significantly boosted stock indexes since the launch of the AI assistant ChatGPT in November 2022.

The S&P 500 index has risen about 17% since the beginning of the year and has gained about 90% in value since the bull market began in 2020. However, investors are concerned about signs similar to those seen during the dot-com bubble 25 years ago.

Tech giants Microsoft, Alphabet, Meta Platforms, and Amazon are signaling confidence in their efforts to build the infrastructure supporting this growing industry. F/m Investments senior portfolio manager Don Nesbitt states, "It’s important to see whether these companies continue to invest in AI data centers. If they start to weaken, that would be a leading indicator for the entire AI theme."

The annual investments among these four giants, along with Oracle, are expected to double from $200 billion between 2022 and 2024, reaching around $500 billion by 2027. Wall Street will scrutinize these companies' quarterly reports for insights into spending trends and expected returns on investments.

While investors point to the potential failure of past spending cycles, they are also concerned that current expenditures may lead to overcapacity. LPL Financial chief equity strategist Jeff Buchbinder said, "We will likely look for signs similar to the excessive capital spending of the late '90s to determine if this is a bubble."

Currently, investors believe that Wall Street wants to see more AI spending. They see this spending as a reflection of whether companies are willing to invest and the 'size of the market opportunity.'

Investors predict that changes in spending plans from companies like Nvidia, Tesla, and Apple will have widespread effects. Citigroup strategists estimate that over 80 companies within the S&P 500 are significantly exposed to AI. As a result, AI spending drives data center construction, benefiting many sectors such as industrial, construction, and utilities.