Is the AI Capex Boom Finally Reaching a Limit?
Author: Chris Wood
The hyperscalers have now reported after the SOX index suffered a 21% decline in July, with Micron down 41% from peak to trough.
But the AI capex remains ongoing with the market now expecting capex of about US$860bn this year by the major AI-related US tech players and another US$1.15tn next year depending on the number of tech companies included in the aggregate.
Those figures are based on the five major hyperscalers and neoclouds CoreWeave and Nebius.
This capex number for 2027 represents about 3.5% of US nominal GDP and about 25% of US non-residential fixed investment to give some kind of macro perspective.
It is also, remarkably, equivalent to 39% of annualised total non-financial pre-tax profits of all US companies, not just listed ones, of US$2.97tn in 1Q26 based on national accounts data.
We cover a lot of ground in the paid portion of this week’s letter.
The data that is starting to convince us the AI Capex arms race is close to peaking.
Hyperscaler valuations - are they dirt cheap or is there still valuation risk?
The treasury bond yield level that would make us very nervous for our stock portfolio.