As hyperscale companies start releasing their earnings reports this week, investors will be eager to see significant increases in projections for spending on artificial intelligence (AI). The key question remains: Will these projections satisfy the market, and what implications could that have for AI stocks? In the January 27 episode of The Morning Filter, David Sekera and Susan Dziubinski examine Sekera’s views as we approach earnings season. The following is an excerpt from the discussion.
Are AI Stock Investors Headed Toward Disappointment?
Susan Dziubinski: This week, we have two major hyperscalers, Microsoft MSFT and Meta Platforms META, reporting earnings. What will truly be crucial in their reports as we get updates from all hyperscalers in the coming weeks? Also, how do their valuations appear as we enter this earnings season?
David Sekera: Microsoft and Meta are both currently rated as 4-star stocks and are trading at a 22% discount to their fair value. However, I see Microsoft primarily as a core holding, while Meta seems more like a bet on AI, with their capital expenditures focused on expanding their AI operations. Regarding the recent quarter’s earnings, I see no reason they can’t meet or exceed expectations. Yet, I believe the market’s primary focus will be on their future capital expenditure forecasts rather than just this past quarter’s earnings.
Last week, I prepared a chart to illustrate the anticipated growth in capital expenditures (capex). For each major hyperscaler, I included projections for 2026 capex spending, compared to last year’s model, along with the ratio of capex to revenue. For example, our current forecast for Meta indicates a $78 billion increase over the last year, which represents 33% of their sales on capex, up from 25%. Microsoft is expected to have $94 billion in capex this year, a significant jump from the previous projection of $57 billion, representing nearly 30% of revenues.
Regarding Alphabet GOOGL and Amazon.com AMZN, we are anticipating substantial increases, notably with Amazon’s capex expected to rise from $74 billion to $134 billion, bringing their spending to 17% of sales, up from 10%. I believe there’s considerable potential for even higher projections from our current estimates, particularly for Meta, with consensus suggesting $95 billion for 2026.
The market seems to expect numbers for capex spending to rise beyond our forecasts; if these increases don’t materialize, it could lead to significant disappointment in the AI stock sector, which may currently be overvalued. According to our base case, many AI stocks are already becoming too extended, and continued growth in capex expectations is vital to sustain the AI narrative moving forward.
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