AI boom: Big Tech capital expenditures now seen topping $1 trillion in 2027

Wall Street analysts are forecasting that total capital expenditures in the artificial intelligence sector could exceed $1 trillion by 2027. This optimistic projection follows significant spending announcements from major tech companies during recent earnings reports. Both Evercore and Bank of America have raised their 2027 capex estimates beyond the $1 trillion mark, with projections for 2026 now falling between $800 billion and $900 billion. Jefferies analysts noted in a Thursday investor update that capital expenditures are continuing to rise due to demand outstripping supply and increasing prices. This year's spending forecasts show a broad increase, with Alphabet, Google's parent company, expected to invest $185 billion, marking a 4% rise. Amazon is anticipated to spend $200 billion, a slight 1% increase, while Meta plans to invest $135 billion, reflecting an 8% increase. Microsoft is making an even bolder move with a 24% increase to $190 billion. Despite the surge in spending, investor skepticism remains prevalent. Amazon CEO Andy Jassy expressed confidence in their long-term capital investments, projecting $200 billion for the year. Alphabet's first-quarter cloud revenue experienced a remarkable 63% year-over-year increase, contributing to a 10% rise in its stock price. CFO Anat Ashkenazi indicated that capex plans are being adjusted to accommodate robust demand. While the escalating costs of AI infrastructure are staggering, analysts are starting to see a positive correlation between investments and revenue growth, as market valuations soar. Jefferies analysts commented, "Cap-ex continues to rise, but the return on investment is becoming evident with a backlog of approximately $2 trillion and accelerating cloud growth." Confidence in revenue generation is particularly strong for Alphabet, which is witnessing significant growth in its backlog, nearly doubling within a quarter to a staggering $462 billion. Most of this backlog is attributed to core Google Cloud Platform contracts, with expectations that over 50% will be recognized as revenue in the next 24 months. In contrast, Meta’s aggressive expansion plans have raised concerns among investors. Shares recently slipped by about 8%, with analysts indicating that Meta remains in a challenging position until it can demonstrate clearer returns on its capital expenditures. The company is expected to double its capex in 2026 to between $125 billion and $145 billion, up from an earlier estimate of $115 billion to $135 billion. Meta CEO Mark Zuckerberg acknowledged rising component costs, particularly for memory, in their capex forecast increase. However, he expressed optimism about the investment's potential based on current industry trends. Unfortunately, Meta's free cash flow has significantly decreased, falling to just $1.2 billion in the first quarter from $26 billion during the same period last year. Bank of America analysts predict that sales and free cash flow will improve across the sector by 2026, which should help support ongoing spending. This sustained growth in capital expenditures is beneficial for chipmakers and hardware providers, who supply the hyperscalers. Notably, Intel's first-quarter earnings were robust, as the AI buildout demands more than just graphics processing units (GPUs). According to Evercore analysts, there is a rising need for various custom application-specific integrated circuits (ASICs), indicating a renaissance for CPU technology driven by agentic AI applications. RBC Capital Markets maintains a favorable outlook on several companies, including Nvidia, Micron Technology, and AMD, noting that strong capital expenditure trends should benefit the sector significantly.