The AI stock surge signals investors will be patient for profit: Morning Brief

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If the summer was about the ROI on AI, or really, the absence of it, how much patience does Wall Street have for tech’s fall earnings?

Judging by the surge in chip stocks, investors waiting for details about where all that infrastructure money is going and when new revenue will be coming will have to wait a while longer. An appreciating asset is its own defense.

As analysts press tech executives for clearer timelines around the supposed AI transformation, chip names continue to climb. Nvidia is once again threatening Apple as the market’s most valuable company. Semiconductor names are amassing gains, reversing a downfall from August. That reflects the intense demand for AI processing and infrastructure and a disregard for short-term worries over ballooning capex. Chasing the dream is expensive.

And once again investors are wondering where the limit is — if it exists.

Third quarter reports are primed to test those boundaries with even more money at stake. The longer the capex hose stays open and the more vehemently executives fuse their identities with the AI wave, the harder it will be to turn back. Megacap tech companies are expected to dedicate $215 billion to AI capital expenditures this year, and according to Goldman Sachs, another $250 billion in 2025.

A slowdown in investment isn’t here yet. But we’ll be looking for clues on how long AI growth will last until company whims, preferences, and future spending start to reveal themselves on spreadsheets. It’s only a matter of time before the imagined productivity gains and “innovative AI use cases” come due.

The tight, symbiotic ecosystem of selling AI hardware suggests that as soon as Big Tech eases spending or pivots elsewhere, previously robust fundamentals might be destabilized.

The tech giants largely disappointed Wall Street last quarter. Only Meta came out with a clear victory. While reactions to earnings from Alphabet (GOOG, GOOGL), Microsoft (MSFT), and Amazon (AMZN) highlighted how heavy AI investment can become a liability, Zuckerberg showed that Wall Street doesn’t mind swelling capex, as long as every other part of the business is exceeding expectations. That’s a high bar to clear. And it will only get harder as the spending side of the ledger gets bigger without surefire revenue to offset it.

Seeing past risk is a virtue at the top of the corporate ladder. So is suppressing bubble chatter. If the upward trajectory of chip stocks is a bellwether then the tech giants will continue to double down on their mega disbursements. That’s what we would expect from tenacious leadership. Even if everyone else is anxious for answers.

Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.