Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

AI CAPEX BOOM COULD WEIGH ON SHORT-TERM ROE FOR HYPERSCALERS, GOLDMAN WARNS

The AI capex boom is set to increasingly weigh on return on equity (ROE) for mega-cap technology firms in the short term, Goldman Sachs said on Friday.

In the next few years, rising depreciation costs at hyperscalers will erode some of the ROE boost, a profitability metric, to the S&P 500 index .SPX -- through higher semiconductor profit margins.

Equity funding for heavy AI investments will further weigh on returns, Goldman noted.

"Consensus estimates imply that ROE for the seven largest technology stocks will decline by an average of 700 bps next year," Goldman added.

The AI investment surge has nonetheless reshaped profitability across the S&P 500. Goldman highlighted that the index’s ROE has climbed to a record 22%, with much of the improvement driven by mega-cap technology firms benefiting from the AI wave.

The top seven companies alone now report a collective ROE of 44%, marking an increase of 900 basis points over the past three years.

Still, Goldman expects pressure to build as heavy capex, rising depreciation and increased equity issuance weigh on returns.

Over the longer term, however, AI could lift ROE for the broader equity market including mega-caps, as productivity gains and efficiency improvements support margins across industries.

(Kanishka Ajmera)

*****

EARLIER ON LIVE MARKETS:

BULLISH REVERSAL REIGNITES S&P 500’S RUN AT RECORD HIGHS CLICK HERE

EUROPE'S DATA CENTRE BOOM HITS A POWER WALL CLICK HERE

BARCLAYS RECOMMENDS ADDING TO GOLD EXPOSURE CLICK HERE

COPPER: THE ROUTE TO $15,000/TON CLICK HERE

HORMUZ AGREEMENT DEALS A STRAIT FLUSH TO MARKETS CLICK HERE

EUROPE BEFORE THE BELL: STOCKS SET FOR BIG JUMP ON HORMUZ AGREEMENT CLICK HERE

MARKETS CELEBRATE MOU ON SOH CLICK HERE