AI capex boom impact on earnings

What happened: Goldman Sachs predicts an AI capex supercycle, with investments surging to $757 billion in 2026, up 84% YoY. Meanwhile, investors express concerns about the impact of AI capital expenditures on earnings, with Meta's capex nearly doubling while free cash flow fell 19%. Apple, despite spending less on capex, faces potential challenges in advanced AI workloads.

Market impact: The AI capex boom is driving significant investment in tech infrastructure, benefiting companies like Nvidia. However, it also raises concerns about the impact on earnings for megacap tech stocks, potentially weighing on their returns on equity. Companies with high capex, like Meta, may face scrutiny, while capital-light models, like Apple's, could gain favor.

What to watch next: Meta's Q2 earnings (July 26) will provide insights into whether its AI investments are translating into earnings growth. Additionally, Apple's Q3 earnings (July 27) will be scrutinized for any signs of potential challenges in its AI capabilities. Lastly, the progress of AI-related regulatory discussions, such as those around data privacy and algorithmic bias, could impact the narrative around AI capex.