The Impact Of The AI Capex Boom On S&P 500 Return On Equity

This report examines the impact of the AI capex boom on S&P 500 Return on Equity (ROE). While index profitability has hit record highs, the authors highlight significant ROE headwinds ahead for the mega-cap tech cohort.

Key Takeaways

• 1.S&P 500 ROE has reached a record high of 22%, but the AI capex boom is expected to create headwinds for mega-cap tech ROE in coming years due to depreciation expenses and asset-heavy business models.
• 2.Consensus estimates suggest ROE for the seven largest technology stocks will decline by an average of 700 bp next year.

Table of Contents

• The impact of the AI capex boom on S&P 500 return on equity
• The outlook for S&P 500 ROE
• Record profitability has been one of the factors supporting high S&P 500 valuations.
• Variation in profitability also helps explain the variation in valuations across equity indices.
• Capital raising to fund the AI build-out signals additional headwinds to ROE.
• S&P 500 earnings and return forecasts
• Biggest stock movers this week
• YTD absolute and risk-adjusted returns
• Sentiment and flows
• Economic growth
• Interest rates and financial conditions
• Market breadth and concentration
• Correlation and volatility
• IPO Barometer and mutual fund performance
• Earnings growth
• Valuations
• Sector returns, earnings, and valuations
• Thematic baskets
• Factors
• Goldman Sachs global macro research cross-asset forecasts
• Disclosure Appendix

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