r/valueinvesting
Capex spending from the hyperscalers?
Discussion on whether hyperscalers' projected $750B 2026 capex expands their moat or destroys FCF value.
- Massive infrastructure investment creates high barriers to entry and strengthens long-term competitive moats.
- Continuous capex is essential to maintain technological leadership and service reliability in the AI era.
- Unprecedented spending levels risk diminishing returns and significant destruction of free cash flow.
- Heavy capital intensity may lead to overcapacity if AI monetization fails to meet aggressive growth expectations.
The hyperscalers are projected to spend a combined $750 billion USD on data center infrastructure in 2026 (estimated). They've been ramping up capital expenditures at unseen levels in history, and show no signs of slowing down. Charlie Munger has mentioned that a companies moat is either constantly shrinking or expanding, and if you're unsure, it's probably shrinking. Do you view this heavy capex for those companies as increasing the moat in the long run, or just waited FCF that could have been better served elsewhere? Does it depend on the trust you have on certain management more than others?
I do actually believe the CapEx is worth something. Despite its CapEx arguably being the most hated on the market META has actually been showing impressive ROI. Worst case scenario, if they overbuild, they’ll just rent out the excess capacity, providing another revenue stream on top of their social media and ad business.
To rent out whom? Feels everyone is outstretched with capex, building etc
Everyone wants more compute than they reasonably can build and buy from outside sources. This is my reading of the current situation and it explains. All the extra debt/dilution/compute rental premiums being paid. The backlogs want to be realized and based on their latest behavior it seems like they're just getting deeper and deeper.
On the other hand Buffet said that the best businesses in the world is one that can shove shit ton of money into the business itself on high ROIC over a long period of time.
It's yet to be unkown what outcome AI spending will bring. They are certainly riding the wave of capital acquisition, which is somewhat accepted and understood by investors. If they were to dilute shares without a solid story behind it, the stock price would plummet; with the AI story, we see the opposite.
Increasing.
Infrastructure is where the moat in AI really is. That's why you have a billion little AI startups, and only a handful of companies messing about in the physical world. The danger is that people might start running models locally, which would reduce the need for cloud based solutions in the immediate term.
That said, we'll utilize data centers and cloud infrastructure one way or another. I'm an Elder Millennial, so I remember when everything was offline, but "the cloud" is older than my kids. I think my grandkids are only going to know "thin devices" where the vast majority of compute is done in the cloud.
US Govt are likely pressuring them to do so, likely threatening and/or bribing them under the table
Google Amazon and Meta are super complicit with both dems and reps in spying on and exploiting americans
They will bend the knee or they will have their feeding tube kinked. One hint about regulation or antitrust, billions wiped from market cap in hours. Actual regulation/antitrust passed, game over. So they will spend the money as they are told.
Make sure you're sitting when the music stops