A veteran market strategist believes that a big payoff is in the cards for Mag 7 firms amid a wave of massive AI spending.
On Saturday, reports emerged that hyperscalers are looking to spend a total of $655 billion in AI this year, led by Amazon’s $200 billion CapEx guidance.
The news triggered a dip across the Mag 7 names as investors worry whether the eye-popping CapEx numbers would ultimately lead to profits.
In a new CNBC interview, Ed Yardeni says the investments are being driven by real capacity constraints. According to the analyst, investors are too focused on current cash flows, while missing how dramatically those cash flows could expand once new infrastructure comes online.
“I think it’s going to be profitable. I mean, these are smart companies run by very smart people. And they’re looking at their dashboards. ‘Oh, my God, we’re running out of capacity. We could be making a ton more money if we just build that capacity.’
And everybody looks at all that spending relative to today’s cash flow. But there’s going to be a lot more cash flow down the road.”
He also pushes back on the idea that AI investment only benefits a handful of mega-cap companies, saying the spending ultimately spreads across the broader market.
“I think, look, the Magnificent 7 can’t be magnificent without selling all of their technologies to the impressive 493 and the S&P 500. I was just asked recently about the Dow. You know, kind of an old-fashioned kind of index. And it’s doing extraordinarily well. To me, that’s kind of confirmation that all of this is going to be very is already and will continue to be very positive for the economy.
To me, that’s kind of confirmation that all of this is already and will continue to be very positive for the economy. If it’s good for the economy, it’s going to be good for all these companies.”
As of Friday’s close, the Dow Jones Industrial Average (DJIA) is hovering at a new all-time high of 50,115.
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