AI is driving the biggest capex boom in US history
AI will boost productivity, but the question is can companies will make an adequate return on their investment to justify lofty valuations.
Add us as a preferred Google source
The scale of the unfolding AI investment boom is unprecedented, eclipsing past US investment booms by a large margin.
AI investment is currently about 4½ times higher than its recent trough, based on BIS estimates.
The only other boom that came close was the creation of the canals in the early 1800s, when investment peaked at about 4 times its corresponding trough.
The railway boom of the late 1800s saw investment peak at about 2½ times its trough, while the booms of the roaring 1920s and dotcom bubble of the 1990s saw capex peak at about double their respective troughs.
History does not necessarily repeat, but past booms suggest that the expansion of AI probably has another 2-3 years before it tops out.
Moreover, the peak in AI investment will mechanically be higher because investment in tech is exaggerated by the rapid depreciation of software and computers.
Software – which is driving the current expansion – depreciates in value by almost half after a year, with depreciation of computers running at about one-third, and research and development depreciating at an annual rate of 15%, all according to Fed calculations.
CCI's analysis has already shown that the tech sector is driving the US economy at the moment, accounting for about three-quarters of recent economic growth.
The tech boom will boost productivity for some time, but the question for markets is whether companies can recoup an adequate return on this massive investment and if equity investors have paid too much for shares.
On the latter, long-term valuation measures – such as the cyclically-adjusted PE ratio – have shown US equities as extremely expensive over recent years, only beaten by the dotcom peak of 1999-00.
Equities are also offering the smallest premium over bonds in recent history, except, again, for the dotcom episode.
While these valuation measures are not designed to provide a signal on timing the market, they underscore the ongoing risk of a correction in stocks, particularly now that Fed seems likely to raise interest rates and with real bond yields at their highest point since before the global financial crisis.
Never miss an update
Enjoy this wire? Hit the ‘like’ button to let us know.
Stay up to date with my current content by
following me below and you’ll be notified every time I post a wire
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 65 executives and over $20 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy, contributing to the investment decisions of the firm. Kieran has long experience as a macroeconomist in both the private and public sectors. He has worked most recently as Chief Markets Economist for National Australia Bank and was previously Chief Economist, Australia and New Zealand, for Barclays Bank and ABN Amro Bank/RBS. Kieran also worked as Principal Adviser on the macroeconomy and budget policy in the Commonwealth Treasury and Director of Forecasting.
........
Investment Disclaimer
Past performance does not assure future returns. All investments carry risks, including that the value of investments may vary, future returns may differ from past returns, and that your capital is not guaranteed. This information has been prepared by Coolabah Capital Investments Pty Ltd (ACN 153 327 872). It is general information only and is not intended to provide you with financial advice. You should not rely on any information herein in making any investment decisions. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. The Product Disclosure Statement (PDS) for the funds should be considered before deciding whether to acquire or hold units in it. A PDS for these products can be obtained by visiting www.coolabahcapital.com. Neither Coolabah Capital Investments Pty Ltd, Equity Trustees Ltd (ACN 004 031 298) nor their respective shareholders, directors and associated businesses assume any liability to investors in connection with any investment in the funds, or guarantees the performance of any obligations to investors, the performance of the funds or any particular rate of return. The repayment of capital is not guaranteed. Investments in the funds are not deposits or liabilities of any of the above-mentioned parties, nor of any Authorised Deposit-taking Institution. The funds are subject to investment risks, which could include delays in repayment and/or loss of income and capital invested. Past performance is not an indicator of nor assures any future returns or risks. Coolabah Capital Investments (Retail) Pty Limited (CCIR) (ACN 153 555 867) is an authorised representative (#000414337) of Coolabah Capital Institutional Investments Pty Ltd (CCII) (AFSL 482238). Both CCIR and CCII are wholly owned subsidiaries of Coolabah Capital Investments Pty Ltd. Equity Trustees Ltd (AFSL 240975) is the Responsible Entity for these funds. Equity Trustees Ltd is a subsidiary of EQT Holdings Limited (ACN 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT).
Forward-Looking Disclaimer
This presentation contains some forward-looking information. These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or result expressed or implied by such forward-looking statements. Although forward-looking statements contained in this presentation are based upon what Coolabah Capital Investments Pty Ltd believes are reasonable assumptions, there can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Coolabah Capital Investments Pty Ltd undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements.
5 topics
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 65 executives and over $20 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment...
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 65 executives and over $20 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment...
Comments
Comments
Sign In or Join Free to comment
most popular
Equities
FDC builds momentum after listing
Montgomery Investment Management
Education
The great Treasury swap (and why it matters)
Montgomery Investment Management
