The global economy is experiencing the largest capex cycle ever, with nearly $5 trillion seen by the end of the decade—and it’s not all AI spending
As the energy sector experiences its own capital tsunami, AI hyperscalers aren’t the only big spenders fueling the economy and financial markets.
Alphabet, Amazon, MetaAnd Microsoft They are pouring hundreds of billions of dollars a year into artificial intelligence. However, the Iran war and the closure of the Strait of Hormuz brought another factor to the fore in capital expenditures.
“I believe this is the greatest capital cycle the global economy has ever experienced; this is the energy transition,” said Eli Horton, TCW’s senior portfolio manager of equity products. he told CNBC on Thursday.
He cited three drivers for the increase in investment spending: energy security, rapid growth in electricity demand, and ongoing efforts to decarbonize.
These will combine to unleash close to $5 trillion in spending by the end of this decade, Horton predicted, adding that he is confident this trend will continue for several decades.
After nearly two decades of stagnation, U.S. electricity demand is rising again due to the revival of domestic production, the electrification of the economy and, more recently, the artificial intelligence craze.
While skeptics doubt the longevity of AI capex, Horton said recent quarterly earnings from hyperscalers show resilience and growing revenue.
He added that the dizzying rise in Caterpillar’s fortunes exemplifies this thesis, as its core businesses (construction equipment, mining equipment and power generation) aim to ride the wave of capital expenditures. GE Vernova is another example as demand for gas turbines is rapidly increasing after years of lagging growth.
“They are now sold through 2030,” Horton said. “There are three companies in the world that produce these. They have a lot of power at the table. It’s important to understand that.”
At the same time, AI capital expenditures are in full swing, albeit somewhat overlapping with the energy transition.
Analysts Bank of America Last month, hyperscaler capex was predicted to reach $800 billion this year alone, up 67% from 2025.
They also predict next year’s total will likely reach $1 trillion, fueled by continued improvement in revenue and cash flow this year.
Of course, a significant part of these astronomical amounts stems from high chip prices. Much of this influx of hyperscaler dollars will flow to chipmakers providing computing capacity to data centers.
“For AI semis vendors, we expect pricing power and margins to remain broadly stable as large compute/network vendors may pass cost increases on to customers,” BofA said.
This story first appeared on: Fortune.com
