AI Summary
5 min readIn the middle of earnings season, four of the world’s largest companies—Alphabet, Amazon, Microsoft, and Meta, with a combined market cap of nearly $12 trillion—reported their quarterly results. But while the focus of earnings season is traditionally on profits, Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley, argues that another line item is rapidly becoming the most important number across asset classes: capital expenditure on AI infrastructure.
The scale is staggering. Sheets estimates that the largest U.S. hyperscalers will spend over $600 billion on capital and equipment this year alone. To put that in perspective, that means a handful of U.S. tech companies are now set to spend almost as much on capital equipment as every non-technology company in the S&P 500 combined. And the spending is accelerating. Just a year ago, the 2026 forecast was roughly half that amount, and that estimate was well above consensus at the time. By 2028, Sheets’ colleagues estimate that U.S. hyperscaler capital spending could hit an annual rate of $1 trillion. “As big as these numbers may seem,” he says, “much of the spending story still lies ahead.”
Spending as Revenue, and the Borrowing It Requires
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What you'll learn
- 1 (00:06) **Capital Expenditure as the Key Earnings Metric** - Andrew Sheets introduces why capex is overtaking earnings as the most important number for markets, framed by the massive AI infrastructure build-out.
- 2 (01:14) **The Staggering Scale of AI Capex** - Morgan Stanley estimates that U.S. hyperscaler spending will exceed $600 billion this year alone, nearly matching all non-tech S&P 500 capex.
- 3 (02:17) **Implication 1: Revenue for Suppliers and Stock Market Winners** - One company's spending is another's revenue, with U.S. semiconductor stocks rising over 30% in a single month tied to this build-out.
- 4 (02:38) **Implication 2: Massive Borrowing Needs in Credit Markets** - Despite enormous resources, this spending requires significant borrowing, driving record bond issuance.
- 5 (03:00) **The Equity vs. Credit Dilemma** - The earnings results create a negatively skewed trade-off for credit relative to equities.
- 6 (03:49) **The Federal Reserve Connection** - The scale of investment may also influence monetary policy through productivity and inflation.
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Guests on this episode
Show Notes
Capital spending usually signals how a company is positioning itself for the future. Our Global Head of Fixed Income Research Andrew Sheets explains why this metric is getting more attention from investors.
Read more insights from Morgan Stanley.
----- Transcript -----
Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley.
Today: Why capital expenditure is rapidly becoming one of the most important numbers in earning season across asset classes.
It's Thursday, April 30th at 2pm in London.
This is a high-risk episode in the sense that it may already be obsolete by the time that you hear it. But then again, maybe that's fitting for a discussion of record capital spending on cutting edge technology.
We are in the middle of the busiest part of earning season, and yesterday four of the largest companies in the world reported numbers. These companies – Alphabet, Amazon, Microsoft, and Meta – have a combined market cap of nearly $12 trillion.
Yet, while the focus of earning season is traditionally about earnings, another line item is rapidly rising in importance. Capital spending on AI infrastructure – the chips, power cooling, and connections that are required to build and run AI models is soaring. And the companies that reported yesterday are at the leading edge of this trend.
The first thing about all this spending is simply the scale. For this year alone, Morgan Stanley estimates that it will amount to over $600 billion across the largest U.S. hyperscalers. To put that in perspective, that means just a handful of U.S. tech companies are now set to spend almost as much on capital and equipment this year as every non-technology company in the S&P 500 did in 2025. And as big as that spending is, it's been accelerating.
That over 600 billion spending number that we forecast for 2026? Well, a year ago we thought it would be roughly half that, and that estimate was well above consensus at the time. U.S. companies have repeatedly guided their spending higher as they seek to capture the AI opportunity. And we think that continues.
By 2028, my Morgan Stanley colleagues estimate that this U.S. hyperscaler capital spending could hit an annual rate of $1 trillion. In other words, as big as these numbers may seem, much of the spending story still lies ahead.
All of that investment, both recently and in the future, has big implications. First, one company's spending is another company's revenue, and many of the stock markets recent winners have been directly tied to this historic buildout.
As of this recording, U.S. semiconductor stocks have risen over 30 percent this month alone.
Second, while these large U.S. tech companies have enormous
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