AI & the Capex Cycle

Artificial intelligence has become one of the key drivers of equity-market earnings growth, capital spending and performance concentration.

In AI & the Capex Cycle — Spend, Returns, and the Fault Lines, LFG+ZEST analyses whether the current AI investment cycle can remain sustainable — and where the main market vulnerabilities may emerge.

Our research shows that AI-related capex has more than tripled over five years and is growing significantly faster than revenues and EBITDA. The cycle is real, still accelerating and highly concentrated around a narrow group of hyperscalers and infrastructure companies.

This spending has created a powerful earnings tailwind for AI beneficiaries, including semiconductors, storage, equipment and data-centre infrastructure. But it also creates a paradox: hyperscalers may need to slow capex growth to protect their own returns, while that same slowdown would reduce the growth engine supporting the beneficiaries of AI spending.

The message is not that the AI cycle must end. The message is that valuations increasingly rely on a favourable continuation of the cycle, leaving limited room for disappointment.

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