Wall Street’s AI bet is now too big to hit: McGeever
QQQ•AI-related stocks have driven much of the S&P 500’s returns and earnings growth, but the scale of investment may make continued gains difficult to sustain. An estimate puts the AI buildout’s financing cost at $10.3 trillion through 2032, requiring about $3.55 trillion in annual revenue by then.
1. High expectations for earnings
The hurdle for continued AI-driven equity gains is high, with upcoming earnings and forecasts from major AI companies set to test investor expectations. Analysts expect S&P 500 earnings to rise more than 30% year over year in the third quarter, with about two-thirds of the increase coming from tech and AI; some analysts put AI’s share of anticipated profit growth as high as 80%.
2. Investment and revenue gap
The AI buildout is estimated to cost $10.3 trillion to finance from last year through 2032. Columbia University professor Stijn Van Nieuwerburgh estimates that, assuming a 10% return, annual revenue of about $3.55 trillion would be needed by 2032 to recover the investment, replace depreciating capital and compensate investors. OpenAI and Anthropic together currently generate around $100 billion in annual revenue, he said.
3. Concentrated market gains
JPMorgan Private Bank’s Michael Cembalest says 41 AI-related stocks have accounted for 75% of S&P 500 returns, 80% of earnings growth and 90% of capital spending growth since ChatGPT launched in November 2022. Recent developments cited in the article include Firmus shelving a planned $5 billion IPO and OpenAI’s September annualized revenue coming in around $50 billion, $20 billion below earlier indications.
