Artificial Intelligence
Tech giants ratchet up spending in AI race
Mihir Mehta
Equity Investment Analyst

The artificial intelligence (AI) capital expenditure (capex) race is kicking into high gear. Rapid developments in AI are requiring massive spending from large technology companies. Alphabet (Google) and Meta are among firms leading the charge on foundational AI research. The tech giants are investing tens of billions of dollars to get AI to "inference,” or use a trained model, and to build cloud-hosted infrastructure for AI enterprises. Forecast at US$189 billion in 2024, four technology giants would account for 21% of the total capex in the S&P 500 Index, up from 4% a decade ago. Over the next three years, this group is estimated to spend US$500 billion as the AI race heats up.

Big Tech leads capex charge

The bar chart shows capital expenditures from Alphabet, Amazon, Meta and Microsoft from 2014 to 2025, where 2024 and 2025 are estimates. The figures represent the companies' capex as a percentage of the total S&P 500 Index capital expenditures in each year. The percentages from 2014 to 2025 are as follows: 4%, 4%, 5%, 7%, 10%, 11%, 16%, 19%, 19%, 16%, 21% and 23%, respectively.

Source: FactSet. Data for Alphabet, Amazon, Meta and Microsoft as of May 1, 2024, with 2024 and 2025 forecasts based on analyst consensus. 

Meta recently raised its 2024 capital expenditure forecast to a range of US$35 billion to US$40 billion for AI infrastructure — a 38% increase year over year. Alphabet and Microsoft also signaled plans to enhance their AI capabilities, raising their annual capex forecasts by 91% and 66%, respectively.

Revenues and earnings have been robust for the large tech firms, supported by high cash flows, enabling them to meaningfully increase their capex. These companies predict AI will permeate all aspects of life and enterprise. Thus, they race ahead to build, despite bottlenecks in chip design, procurement and energy. While they would like to vertically integrate and develop their own AI processors, catching up to semiconductor firms, including Nvidia, Broadcom and Micron, won’t be easy. Until they do, chip companies remain in an advantageous position for continuing the AI buildout.

Mihir Mehta is an equity investment analyst at Capital Group with 10 years of investment industry experience (as of 12/31/2023). He holds an MBA from Stanford Graduate School of Business and bachelor's degrees in economics and international studies from Johns Hopkins University graduating magna cum laude. 

S&P 500 Index is a market capitalization-weighted index based on the results of approximately 500 widely-held common stocks.


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