Wall Street’s AI bet is now too big to hit: McGeever
SPY•AI-related stocks have driven much of the S&P 500’s returns, earnings growth and capital spending since ChatGPT launched, while estimates suggest the AI buildout will require $3.55 trillion in annual revenue by 2032 to meet a 10% return assumption.
1. High 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 growth coming from tech and AI, according to LSEG’s head of earnings and equity research. Some analysts estimate AI and tech could contribute as much as 80% of anticipated total profit growth.
2. Spending and revenue
The AI buildout is estimated to cost $10.3 trillion 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. Combined annual revenue at OpenAI and Anthropic is currently around $100 billion, he said.
3. Market concentration
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 include Firmus shelving its planned $5 billion IPO and OpenAI’s September annualized revenue being around $50 billion, $20 billion below previous indications.
