Bank of America: Capital expenditures on AI by mega corporations are still high, with the monetization "lag" likely to hurt profit margins.

Bank of America Corp stated that the capital expenditure on artificial intelligence for mega-cap companies has not changed and has not been impacted by DeepSeek, but monetization remains weak, and companies in the reinvestment cycle have historically performed poorly. Mega-cap companies such as Microsoft Corporation (MSFT.US), Meta Platforms (META.US), Amazon.com, Inc. (AMZN.US), and Alphabet (GOOGL.US) are expected to increase their capital expenditure by $34 billion in 2025, a 13% growth compared to this year. These companies are expected to spend approximately $290 billion in total capital expenditure, representing a more than 34% increase from last year. Ohsung Kwon, securities stock and quantitative strategist at Bank of America Corp, wrote in a report, "This confirms that the artificial intelligence capital expenditure cycle has not been affected by DeepSeek, but DeepSeek reminds us of the bear market the AI semiconductor industry once faced." Moreover, as risks stemming from the AI war with China continue to sound alarms in the United States, Kwon stated that this competition has also "weakened the cost-cutting options that large tech companies had in 2022/2023." Furthermore, capital expenditure reports from 234 companies so far have shown an increase of over 3%, not including the "Big Seven" stocks and tech companies such as Apple Inc. (AAPL.US), Microsoft Corporation, Alphabet, Amazon.com, Inc., NVIDIA Corporation (NVDA.US), Meta Platforms, and Tesla, Inc. (TSLA.US), with total capital expenditure increasing by over 23% year-on-year. Capital expenditure guidance, which measures the proportion of capital expenditure guidance above or below market expectations, is currently at a strong level of 1.67 times. However, this ratio may decrease if company growth stalls. Kwon also said that price reactions indicate increasing concerns about the gap between the capital expenditure and monetization capabilities of mega-cap companies. In the future, as the capital expenditure cycle progresses, profit margins are expected to take a hit. Meta Platforms is the only company whose stock price rose due to profitability. "Assuming a lifespan of 10 years, we estimate a consensus expectation of $612 billion for capital expenditure in 2025-2026. By increasing depreciation and amortization costs, the EBITDA margin will increase by 160 basis points in 2026 compared to the fourth quarter of 2024."