The emergence of DeepSeek has stirred significant interest and sparked heated discussions concerning its implications for the industry at largeRecently, the Bank of America released a comprehensive research report that delves into the trends of artificial intelligence capital expenditures among ultra-large enterprises in this context, shedding light on the underlying market dynamics and associated risks.

The report indicates that while DeepSeek has made a notable entrance into the AI landscape, the capital expenditures on AI from mega-corporations such as Microsoft, Meta Platforms, Amazon, and Alphabet have remained relatively unscathed, continuing on their projected growth trajectoriesLooking ahead to 2025, a substantial increase of $34 billion in capital expenditures is anticipated, with a reported 13% growth year-to-dateCollectively, these giants are expected to channel approximately $290 billion into capital expenditures, marking a year-over-year increase of over 34%. Such a formidable outlay underscores the determination of these industry leaders to maintain their foothold in the AI arena by continuously investing and capturing technological advancements.

Ohsung Kwon, a securities and quantitative strategist at the Bank of America, explicitly stated in the report, “This confirms that the AI capital expenditure cycle has gone unaffected by DeepSeek

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However, DeepSeek reminds us of the downturn that AI semiconductors experienced in previous years.” This observation points to the notion that despite the fact that current capital expenditure plans of these mega-corporations remain intact, the rise of DeepSeek serves as a cautionary reminder, intertwining echoes of previous market lulls for the AI semiconductor sector and prompting vigilance towards potential market fluctuations.

Beyond these titans, a multitude of other companies are actively strategizing their positions in the marketplacePresently, about 234 companies have reported capital expenditure growth exceeding 3%, a figure that notably excludes tech and stock giants like Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla—termed the "Seven Giants." These companies have experienced a year-over-year growth in total capital expenditure surpassing 23%, reflecting a robust enthusiasm and active engagement across the sector, where AI increasingly becomes a driving force behind corporate evolution and innovation.

Capital expenditure guidance, serving as a pivotal indicator juxtaposing market expectations against actual business spending, remains at a notably strong level of 1.67 timesThis metric suggests a prevailing optimism among stakeholders towards corporate investment plans, believing that expenditures would yield corresponding returnsHowever, Kwon also noted that if a company's growth stalls, this ratio may diminishA failure to meet expected growth could undermine market confidence in capital expenditure, instigating a chain reaction affecting the entire market.

Amidst this persistent growth in capital expenditures, underlying apprehensions are surfacing within the market

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Kwon remarked that price reactions indicate growing anxiety regarding the widening gap between the capital expenditures of mega-corporations and their monetization capabilitiesDespite hefty investments in the AI domain, the weakness in monetization translates to insufficient actual returns from these investmentsWith the continuing capital expenditure cycle, profit margins are expected to face pressuresCurrently, Meta Platforms is the sole company that has witnessed a stock price increase due to profitability, further reflecting the struggles other mega-corporations are encountering to achieve robust earnings.

In further analysis, Kwon posits, “Assuming a lifespan of ten years, we estimate a consensus expectation for capital expenditures in the 2025 to 2026 timeframe at $612 billionThis increase in depreciation and amortization costs suggests an anticipated rise of 160 basis points in EBITDA margins compared to the operational metrics from Q4 2024.” This projection implies that, while heightened capital expenditure may bring about increased depreciation and amortization costs, there lies a potential for enhanced EBITDA margins if effectively managed in the long termHowever, this journey is fraught with challenges, necessitating harmonious efforts in technology development, market expansion, and cost control to realize effective returns on investment.

Although the capital expenditure from ultra-large enterprises in the AI sector remains undeterred by the emergence of DeepSeek, the underlying weaknesses in monetization and market concerns regarding the input-output disparity undoubtedly cast a shadow over industry developmentMoving forward, how these corporations enhance their monetization capabilities while sustaining their investments will be pivotal in determining their success or failure within the AI landscape

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