- Huge capex spending hasn’t come through in income statements
- More capital intensity should eventually lead to lower earnings multiples
For the past decade, the US stock market has been defined by a few unusually profitable technology companies. Each dominated a specific market, using network effects and capital-light models to generate extraordinary cash flows. But the emergence of artificial intelligence (AI) is transforming these same companies into capital-intensive businesses, and, despite the current excitement, there are concerns this could lead to structurally lower returns over the coming years.
For Microsoft (US:MSFT), Windows and Office 365 long ago entrenched it as the leading enterprise software company. At Meta (US:META), the creation of Facebook, and subsequent acquisitions of Instagram and WhatsApp, mean it now has more than 3bn users worldwide. Meanwhile, Google has consistently had over 90 per cent of the search engine market since it indexed every website on the internet at the turn of the century.