Tech Giants Prepare for an AI Spending Surge in 2025

Artificial intelligence (AI) is shaping up to be the most transformative technology in a generation. Its remarkable capability to quickly produce text, images, videos, and even computer code has the potential to propel a significant productivity surge for businesses worldwide.

While the AI industry is still in its early stages, analysts on Wall Street predict that it could contribute between $7 trillion and an astonishing $200 trillion to the global economy over the next decade. This potential has sparked a fierce competition among major tech companies, all vying for leadership in the AI sector. They are investing substantial sums into data center infrastructure and advanced chips to secure their positions.

Investment bank Morgan Stanley estimates that four major technology companies will collectively invest around $300 billion in capital expenditures (capex) by 2025, primarily driven by AI initiatives. Notably, Nvidia is expected to be a significant beneficiary of this spending spree, as it provides the most advanced chips utilized in AI development.

Current Spending by Tech Giants

To create more advanced AI software, developers must train larger and more complex language models, which require substantial data and processing power. This processing capacity can be quite costly.

Many businesses, especially those not backed by hefty investments like AI startups OpenAI and Anthropic, find it unaffordable to establish their own data centers. Instead, they lease computing resources from major tech firms that are constructing large centralized infrastructures.

Here’s a look at how much some tech giants are currently spending on capex, including investments in AI infrastructure:

• Microsoft spent $20 billion in its first fiscal quarter of 2025 (ended September 30), following a significant $55.7 billion in spending for fiscal 2024.
• Amazon announced plans to allocate $75 billion throughout 2024 to further its AI endeavors.
• Alphabet projects over $50 billion in capex by the end of 2024.
• Meta Platforms is on track to spend up to $40 billion on capex this year.
• Oracle has planned a $13.8 billion capex for its fiscal year 2025, concluding in May.
• Tesla intends to invest over $11 billion in AI infrastructure in 2024 to enhance its self-driving software.

A major portion of this investment focuses on chips. During 2023, Nvidia's H100 graphics processing units (GPUs) emerged as the preferred choice for AI development, leading to a 98% market share for the company. They continue to sell well today, especially now that Nvidia has begun shipping its new Blackwell GPUs, which significantly enhance performance.

Growth Expectations for 2025

Morgan Stanley forecasts a combined capex of $300 billion from four tech giants in 2025:

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

These figures indicate substantial growth compared to their anticipated spending in 2024. While it's impossible to ascertain the exact allocation for chips, Morgan Stanley estimates that Nvidia could ship around 800,000 units of its Blackwell-based GB200 GPU within the first quarter of 2025.

Price estimates for the GB200 GPU range between $60,000 and $100,000, suggesting potential revenue of approximately $64 billion during the first three months of 2025, assuming an average price of $80,000 per GPU. Given that Nvidia posted $35 billion in total revenue last quarter, this anticipated growth could be substantial.

Reports suggest Microsoft is currently the largest customer for GB200 GPUs, while Oracle plans to use over 131,000 units to construct a cluster. The GB200 NVL72 system performs AI tasks at speeds 30 times faster than its predecessor, the H100, which explains the high demand for these chips.

Nvidia: Potential Top Performer in the Spending Wave

Now, let’s discuss what this surge in spending might mean for Nvidia's stock. Despite an impressive gain of 700% over the past two years, Nvidia may still be undervalued.

The company expects to generate about $129 billion in revenue during its fiscal year 2025 (ending in January), while also maintaining high profitability. Over the past year, Nvidia has reported earnings of $2.54 per share, which equates to a price-to-earnings (P/E) ratio of 53.5 — below its 10-year average of 58.8.

When looking ahead, Wall Street analysts project that in fiscal year 2026 (starting in February 2025), Nvidia could achieve earnings of $4.43 per share on total revenue of $195 billion. This projection would result in a forward P/E ratio of only 30.6. For Nvidia's stock to align with its historical average P/E ratio, the price would need to increase over 90% in the coming year.

Additionally, Nvidia has consistently outperformed Wall Street’s expectations, hinting at possible further growth.

The information discussed here is not intended as investment advice. Readers should conduct their own research and consider their financial circumstances before making investment decisions.

AI, Investment, Technology