Tech Titans Set to Invest $300 Billion in AI by 2025

Artificial intelligence (AI) is shaping up to be one of the most transformative technologies in recent history. Its unique capability to quickly generate text, images, videos, and computer code is poised to catalyze an unprecedented boost in productivity across businesses globally.

The AI industry is still relatively young, but forecasts from Wall Street indicate that it could contribute between $7 trillion and $200 trillion to the global economy over the next ten years. Consequently, major tech companies are engaged in a fierce competition for dominance in AI, investing heavily in data center infrastructure and advanced computing chips.

According to an estimation from investment bank Morgan Stanley, a group of four leading technology firms is expected to channel a combined $300 billion into capital expenditures (capex) by the year 2025. The primary driver for this massive expenditure will be investments in AI, with Nvidia supplying many of the most advanced chips necessary for such development, putting its stock in a strong position to benefit from this spending spree.

Current Spending Trends among Tech Giants

To develop more advanced AI applications, developers require sophisticated large language models (LLMs) that call for extensive data processing power—an expensive requirement. While established AI startups like OpenAI and Anthropic have the financial resources to construct their own data centers, most businesses rely on renting computing capacity from tech giants that are building centralized infrastructure.

Based on public financial reports, here’s a breakdown of how much certain tech giants are currently investing in capex, specifically for AI infrastructure:

• Microsoft spent $20 billion on capex in the first quarter of its fiscal 2025 (ending September 30), which follows a sizeable expenditure of $55.7 billion during fiscal 2024.
• Amazon informed investors that it plans to allocate $75 billion throughout 2024 to bolster its AI initiatives.
• Alphabet (Google) is projected to spend over $50 billion on capex by the conclusion of 2024.
• Meta Platforms aims to invest up to $40 billion on capex this year.
• Oracle has earmarked $13.8 billion for capex in its fiscal year 2025, ending in May.
• Even Tesla plans to invest over $11 billion in AI infrastructure for 2024 to improve its self-driving vehicle technology.

Chips play a crucial role in this capital allocation. In 2023, Nvidia's H100 graphics processing units (GPUs) became the leading choice for AI development, allowing the company to capture a remarkable 98% market share. Today, Nvidia has commenced the shipment of its new Blackwell GPUs, which promise a significant enhancement in performance.

Growth Projections from Morgan Stanley for 2025

Morgan Stanley projects that four tech powerhouses will invest a combined $300 billion on capex in 2025, with the following individual estimates:

• Amazon: $96.4 billion
• Microsoft: $89.9 billion
• Alphabet: $62.6 billion
• Meta Platforms: $52.3 billion

These projections signify substantial growth from the current spending levels of these companies in 2024. It's challenging to determine the exact portion of this expenditure that will be directed toward chips, but prior forecasts from Morgan Stanley hinted that Nvidia may ship as many as 800,000 units of its GB200 GPU, based on their Blackwell architecture, during the first quarter of 2025.

The estimated prices for these GPUs range between $60,000 to $100,000, which indicates that sales could translate into about $64 billion in revenue in the first quarter of 2025 if averaged at $80,000 per unit. Given that Nvidia reported a total revenue of $35 billion recently, it signifies a substantial growth potential ahead.

Early reports suggest that Microsoft is becoming the largest purchaser of GB200 GPUs, while Oracle intends to create a large computing cluster using over 131,000 GPUs. The GB200 NVL72 system can execute AI inference operations at a rate 30 times faster than its H100 counterpart, making it highly sought-after by businesses.

Nvidia Stock Could Be The Key Beneficiary

Considering the scale of spending anticipated, Nvidia's stock outlook appears promising. Despite a remarkable 700% surge over the past two years, analysts suggest that the stock might still represent good value.

Nvidia is projected to earn $129 billion in revenue for its fiscal 2025 (ending in January), maintaining high profitability. Over the past four quarters, the company has reported earnings per share (EPS) of $2.54, giving it a price-to-earnings (P/E) ratio of 53.5, which is slightly lower than its long-term average of 58.8.

Looking ahead, the outlook for Nvidia appears even brighter. Analysts suggest that for the fiscal year 2026, the company could achieve an EPS of $4.43 on revenue of $195 billion. This would equate to a forward P/E ratio of 30.6, indicating that the stock would need to grow over 90% next year just to meet its historical P/E average.

Furthermore, Nvidia has consistently outperformed Wall Street expectations, indicating that there may still be room for additional growth.

AI, Investment, Technology