AI CapEx slowdown threatens tech earnings
The guest argued that hyperscaler CapEx is declining in real terms, making the apparent surge in tech sector earnings an optical illusion driven by inflationary component costs.
The argument
David Wu noted that Q1 CapEx for major hyperscalers fell quarter-over-quarter, while rising component prices artificially boosted memory suppliers' margins. Because hyperscalers amortize these costs via depreciation while suppliers book them immediately, aggregate index earnings look artificially strong, a trend further threatened by a Q2 slowdown in token consumption.
The thesis, stress-tested
✓ What validates it
- ✓Q2 earnings reports showing a sequential decline in hyperscaler CapEx
- ✓A drop in revenue growth for major LLM providers
▸ Risks discussed
- ▸Hyperscalers could re-accelerate real CapEx spending
- ▸Token demand could remain structurally high without a Q2 pullback
Hear it yourself
"Thanks for having me. David, what do you think about AI, the huge CapEx in data centers that's now global and just the AI data center trade? For me, the big takeaway from the first quarter was the fact, by the way, the combined CapEx, okay, of the five hyperscalers that is Microsoft, Google, Amazon, you know, whatever, Oracle, and Facebook were actually down for the first time in three years, actually, on a quarter on quarter comparison. In fact, even on a year on year comparison, the growth rate dropped relative to the, to, the fourth quarter last year."
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