Alphabet Among Mega-Caps to See Seven-Point ROE Drop on $770B AI Capex
GOOG•Goldman Sachs reports S&P 500 ROE reached a record 22% in Q1 2026, propelled by mega-cap tech firms whose combined ROE hit 44%. Analysts project a seven-point ROE decline next year as AI-related capex lifts depreciation to 12% of revenue and drives $770 billion in 2026 spending.
1. Record ROE Driving Tech Profitability
S&P 500 return on equity surged to 22% in Q1 2026, marking an all-time high driven by rising profit margins. Mega-cap technology companies, including Alphabet, collectively posted a 44% ROE, up nine percentage points over the past three years.
2. Forecasted ROE Decline for Mega-Cap Tech
Analysts expect ROE across the largest tech firms to fall by seven percentage points next year as AI infrastructure investment accelerates. Alphabet’s profitability metrics are poised to reflect this pressure as spending on data centers and computing assets ramps up.
3. Escalating AI Capex and Depreciation
Hyperscale technology companies plan roughly $770 billion in capital expenditures in 2026, equating to about 100% of their operating cash flow. Depreciation and amortization expenses for these firms are projected to rise from 7% of revenue in 2022 to 12% by 2027.
4. Long-Term AI Profitability Prospects
Despite near-term ROE headwinds, productivity gains from AI adoption could boost sales, earnings per employee and margins over time. Semiconductor suppliers stand to benefit most, supported by strong pricing power and sustained demand for AI hardware.
