Bernstein analysts declared in a note Wednesday that "Big Tech is the new Big Oil," with the CapEx of Google, Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Meta (NASDAQ:META), and Apple (NASDAQ:AAPL) combined expected to reach $200 billion or more this year.
Furthermore, the firm calculates that over the next five years, Big Tech is on track to spend $1 trillion in CapEx, with most of those incremental investment dollars flowing into artificial intelligence (AI) initiatives.
The concentrated spending is reminiscent of Big Oil (Exxon (NYSE:XOM), Chevron (NYSE:CVX), Total, Shell and BP), which spent $166 billion in 2013.
"We estimate Meta, Google (NASDAQ:GOOGL), Amazon, and Microsoft spent ~$100B in Technical infrastructure CapEx in 2023, and we expect it to grow +52% Y/Y to $156B for 2024," writes Bernstein. "A hefty portion of the increment spend is AI-specific focused on upgrading core processes as well as Greenfield AI opportunities."
Nevertheless, despite the heavy AI buzz, the investment cycle still surprises Bernstein analysts.
"AI has been an investment topic for 18+ months now, yet the scale of this investment cycle still surprises, adds the firm. "Consensus 2024 CapEx estimates has been revised up +15-40% since the start of last year, with upwards revisions of +8-15% in the last few weeks alone."
In addition, Bernstein says that while Big Tech may win in the AI sector, they question what the cost will be.
Big Tech is said to be facing a 100-300bps operating margin headwind in 2024 from the depreciation flow-through, as well as 200-700bps in free cash flow margin compression.
"If CapEx intensity continues through 2026, outer year depreciation estimates may be undershooting by 10-15%," states Bernstein. "Margins may also strain under higher AI headcount and overhead costs, though management teams have alluded to re-allocating existing resources towards higher priority AI initiatives."