3 ways the AI spending boom could play out

"Big tech earnings season was dominated by AI capex projections that stunned investors and hit the stocks of Amazon, Microsoft, and Google, aka AMG. This short-term drama makes it hard to think clearly about the long-term trajectory of AMG's businesses. To step back from the volatility, I use a framework called "KGB" that lays out three scenarios for the future of hyperscaler capex."

"K: Keeping Up With the Joneses In this future, AMG are locked in an arms race, each spending aggressively to avoid falling behind. A more charitable version says executives believe failing to integrate AI is an existential threat, so they'll spend whatever it takes to avoid becoming the next digital Sears. Skeptics see this as reckless competition - burning cash for bragging rights, with tears and heavy losses inevitable."

"G: Goldilocks Here, AMG spending ends up "just right" to meet customer demand. These companies have unmatched visibility into future AI usage: real-time telemetry, signed long-term contracts, and ongoing enterprise negotiations. From this perspective, rising capex simply reflects confidence in durable demand and solid monetization. B: Boat As in Jaws, when the police chief finally sees the gigantic shark and mutters, "You're gonna need a bigger boat." In this scenario, no matter how much AI capacity AMG builds, it gets absorbed immediately. The supply of chip"

AI-driven capital expenditure projections dominated recent big-tech earnings and caused share-price declines for Amazon, Microsoft, and Google. Short-term market reactions obscure longer-term implications for hyperscaler business models. Three scenarios frame possible capex trajectories: Keeping Up With the Joneses, an arms race where each hyperscaler spends aggressively to avoid falling behind; Goldilocks, where spending matches durable customer demand and monetization; and Boat, where every increase in capacity is immediately absorbed by demand. Each scenario carries different implications for profitability, cash burn, and strategic risk, making capex projections central to investor assessments.

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