A few years left in the AI capex spending cycle, says Deepwater's Gene Munster

Key Concepts:

• Nvidia's Outlook: Raised by Jensen Huang, exceeding street expectations by approximately 15% for the next five quarters.
• MAG 7 Strength: Demonstrated by Apple's iPhone resurgence, Google's search growth, and Meta's accelerating daily active users (DAUs).
• Meta's CAPEX Spend: Investor questioning regarding the return on investment (ROI) for AI expenditures.
• Meta's "Year of Innovation": Shift in narrative from accelerating revenue and slower expense growth to increased investment in talent and AI.
• AI Spend Sustainability: Discussion on the current high percentage of GDP growth attributed to AI and its long-term viability.
• Leadership in AI Race: Emphasis on the urgency and intensity of CEOs like Musk and Zuckerberg in navigating the AI transition.
• Meta's Talent Acquisition: Significant investment in talent, despite internal friction, with the expectation of future innovation.
• Meta's CAPEX Forecast: CFO Susan Lee's projection of nearly 40% CAPEX growth for the next three to four years.

Nvidia: The Hidden Winner

This week's earnings reports and industry events highlighted Nvidia as a significant, albeit understated, winner. Jensen Huang's keynote at GTC saw Nvidia raise its outlook by approximately 15% for the next five quarters, a projection later confirmed by subsequent data. Despite this strong performance, the stock did not reflect this surge, primarily due to investor apprehension surrounding Nvidia's $5 trillion market capitalization and the perceived finite nature of hardware investments. The underlying sentiment is that investors still struggle to grasp the early stages of the massive capital expenditure (CAPEX) buildout in the infrastructure sector, leading to a lack of immediate stock appreciation.

Strength of the MAG 7 Companies

Beyond Nvidia, the week underscored the enduring strength of the "MAG 7" companies. This resilience was evident in several key areas:

• Apple: Experienced a resurgence in iPhone sales, driven by upgrades from customers who purchased devices four years ago.
• Google: Demonstrated continued growth in search revenue, attributed to its ability to optimize search results for an increasing number of user queries.
• Meta: Showcased a significant acceleration in daily active users (DAUs), growing at 7.6% in the September quarter. This represents a sequential acceleration for five consecutive quarters, up from 4% growth five quarters prior.

These observations reinforce the idea that these large technology companies possess strong "moats" and "flywheels" that continue to generate momentum and position them favorably for future growth.

Meta's CAPEX and Investor Scrutiny

A notable point of discussion was the market's reaction to Meta's capital expenditure (CAPEX) plans and its 2026 forecast. Investors are increasingly questioning the return on investment (ROI) for the substantial dollars being spent on Artificial Intelligence (AI). This scrutiny is particularly relevant to Meta, where the narrative has shifted.

The "Flipping of the Script" for Meta

The period since February 1st, 2023, marked as Meta's "Year of Innovation," initially saw accelerating revenue growth with expenses growing at a slower pace. However, the recent shift in focus towards massive AI investment has altered this dynamic. While the growth in daily active users remains a positive indicator, the substantial CAPEX spend has led to investor concern about the immediate financial returns.

Leadership and Talent in the AI Race

The transcript emphasizes the critical role of leadership in navigating the current technological transition. Google, for instance, faced criticism earlier in the year for a perceived lack of urgency and leadership in this area. In contrast, Mark Zuckerberg and Elon Musk are highlighted as CEOs demonstrating the most urgency. Zuckerberg's significant investment in talent at Meta is seen as a crucial factor. Despite internal friction and past disappointments like Llama, the influx of skilled individuals since the summer is expected to drive future innovation and potentially shift the narrative back towards faster revenue growth outpacing expenses.

Sustainability of AI Spend

The sustainability of the current AI spending trajectory was a key debate. With AI spend accounting for 92% of GDP growth in the first half of 2025, and currently representing 4% of GDP, questions arise about its long-term viability.

The "Intense Race" and Future Outlook

The argument for sustainability in the near to medium term is rooted in the "intense race" among companies to develop and deploy AI technologies. While acknowledging that this growth cannot continue indefinitely and that absolute dollar amounts will eventually decline, the consensus is that this leveling off is likely several years away. The "law of large numbers" will eventually impact these growth rates.

Meta's CAPEX Forecast and Potential Slowdown

Meta's CFO, Susan Lee, indicated at the Goldman conference on September 9th that the company expects CAPEX to grow by nearly 40% for the next three to four years. While acknowledging that a slowdown is inevitable, the current projections suggest that this slowdown is not imminent. The expectation is that this conversation about high CAPEX and its implications will persist for at least the next six months.

Conclusion

This week's earnings and industry insights reveal a complex landscape. Nvidia stands out as a strong performer, though its market valuation reflects investor caution regarding long-term hardware cycles. The MAG 7 companies continue to demonstrate robust user engagement and revenue growth, underpinned by their established business models. Meta, while experiencing user growth, faces investor scrutiny over its aggressive AI CAPEX strategy. The intense competition in the AI space is driving significant investment, with the sustainability of this spending being a key question for the future. Strong leadership and talent acquisition are identified as critical factors for companies to succeed in this transformative era, with Meta's current strategy reflecting a significant bet on future innovation. The current trajectory of AI spending is expected to continue for several years before any significant slowdown occurs.