Wall Street’s AI bet is now too big to hit: McGeever
QQQ•AI-related stocks face a high bar to sustain gains as analysts expect more than 30% third-quarter S&P 500 earnings growth, with much of it coming from technology and AI. Estimates cited in the column put the AI buildout’s financing cost at $10.3 trillion through 2032 and the required annual revenue at $3.55 trillion by then.
1. High earnings hurdle
The S&P 500 and Nasdaq reached fresh highs last week, while negative AI-related headlines raised questions about whether markets can sustain their gains. Analysts expect S&P 500 earnings to grow more than 30% year over year in the third quarter, with two-thirds of that increase coming from technology and AI; some estimates put AI’s share of anticipated profit growth as high as 80%.
2. Buildout economics
The AI buildout is estimated to cost $10.3 trillion to finance from last year through 2032. Assuming a 10% return, Columbia University professor Stijn Van Nieuwerburgh estimates the industry would need about $3.55 trillion in annual revenue by 2032 to recover investment, replace depreciating capital and compensate investors. He says OpenAI and Anthropic currently generate about $100 billion in combined annual revenue, implying growth of more than 80% a year through 2032 to reach that target.
3. Signs of strain
Australia’s Firmus shelved a planned $5 billion IPO, while OpenAI’s annualized September revenue was reported at around $50 billion, $20 billion below earlier indications. Samsung said it expected third-quarter earnings of around $80 billion, and TSMC reported record third-quarter revenue of $46.7 billion, up 50% year over year and above forecasts; shares in both companies fell. JPMorgan Private Bank’s Michael Cembalest said 41 AI-related stocks accounted for 75% of S&P 500 returns, 80% of earnings growth and 90% of capital-spending growth since ChatGPT launched in November 2022.
