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Big Tech’s Massive Spend Is Masking a Slowdown in Capex Growth

Tech giants Microsoft and Meta vow to keep up with AI spending plans but is this feasible for the fast-growing sector? Head of citizens JMP Mark Lehmann explain

(Bloomberg) -- As Corporate America reports fourth-quarter results, a chasm is opening between the seven biggest companies in the S&P 500 Index and everyone else. The giants are boosting their spending at a rapid pace, while the others are barely treading water.

The biggest companies — often called the Magnificent Seven — have been increasing their business outlays on things like property and equipment, spending 40% more on the category in 2024 than the year before, according to strategists at Societe Generale SA. The rest of the S&P 500 grew capital expenses by just 3.5% last year, the strategists added.

“One obvious reason for weak capex growth is declining operating cashflow for the S&P 500 excluding financials and the Magnificent Seven,” the strategists led by Andrew Lapthorne wrote in a note to clients.

The seven biggest firms have been the growth engine for the benchmark index for a while now, as their profit, sales and cash piles grew significantly faster than the other 493 stocks in the gauge. For 2024, earnings for the Magnificent Seven are expected to jump 34%. Excluding the group, the S&P 500’s profit is estimated to rise by 5%, according to data compiled by Bloomberg Intelligence. 

The results underscore the gulf between the haves and have-nots of the corporate world, and the current spending patterns could entrench that division. 

Still, beyond the Magnificent 7, growing capital expenditures have not been a recipe for success in the markets. Typically, companies with higher spending on property, plants and equipment have generally been out of favor on Wall Street, compared to the broader stock market. A Goldman Sachs index of 50 US companies with the highest spending on capex and research and development is on track to underperform the S&P 500 for a fifth consecutive quarter.

Capital expenditure, particularly among the Big Tech companies, has been a hot topic over the past few months amid concern that while the firms are plowing in billions of dollars into developing artificial intelligence technologies, the return on that investment may not come any time soon. 

These concerns intensified quickly after last week’s news that Chinese startup DeepSeek had created an AI model that was on par with those made by top American AI developers. Perhaps more importantly, the company claimed to have done so for a fraction of the development cost, using less powerful hardware.

Still, AI’s massive potential to eventually transform almost every industry pushes technology companies to continue spending part of their huge cash piles on research and development in an effort to win the race. The rest of the 493 are living in a slightly different reality, juggling worries about stubborn inflation, still-high interest rates and uncertainties related to multiple trade wars looming on the horizon.

“Cost of capital has gone up and historically cost of capital is inversely related to capex,” said Eric Diton, president of the Wealth Alliance. “If I am running a large company, I will be cautious about making huge investments if my firm is going to be hurt by tariffs,” he added.

Stocks were whiplashed on Monday after US President Donald Trump ordered 25% tariffs on all goods from Canada and Mexico, but later paused them for 30 days when leaders of the two countries committed to addressing his demands. 

Meanwhile, across-the-board tariffs of 10% on imports from China went into effect on Tuesday, and Beijing retaliated with additional tariffs on roughly 80 products to take effect on Feb 10. Beijing also opened an antitrust investigation into Google, tightened export controls on critical minerals, and added two US companies to its blacklist of unreliable entities.

“Uncertainty is another enemy of capex and right now there is plenty of it,” Diton said.

©2025 Bloomberg L.P.