AI is the story driving markets in 2025, but as companies rack up huge tabs in their sprawling infrastructure buildout, some investors have begun to worry: will all of the spending be worth it?
There's been a lot of debate over whether the huge amount of AI spending will ultimately be worth it.
Morgan Stanley has a reassuring outlook for concerned investors: the spending spree will pay for itself soon.
The bank said the huge capex could produce positive impacts to revenues by 2028.
AI is the story driving markets in 2025, but as companies rack up huge tabs in their sprawling infrastructure buildout, some investors have begun to worry: will all of the spending be worth it?
Morgan Stanley this week has a reassuring answer.
OpenAI alone has announced a huge web of deals with the largest players in tech, announcing big partnerships with Oracle, Nvidia and Advanced Micro Devices. The AI startup is doubling down on investments in chips and data centers to support its fast-growing infrastructure.
In an October 13 note to investors, Morgan Stanley global director of research Katy Huberty shared a chart on AI tech spending diffusion. It showed a group of highly connected tech companies with a lot of capital flowing either through or from OpenAI.
The analyst notes that Morgan Stanley's tech team thinks the AI spending cycle is still in its early stages, but the huge price tag shouldn't necessarily spook investors.
"Our team believes the sustainability of the current investment cycle ultimately depends on whether AI generates durable cash flows to support returns on the significant capital being committed," Huberty stated. "And their bottom-up analysis suggests they will, as they forecast US$1.1 trillion in AI software revenue in 2028 at typical software margins."
Morgan Stanley's forecast implies the current wave of AI spending is part of a longer-term profit cycle and not a speculative bubble that some have begun to fear. If those revenue targets prove correct, Huberty's team sees the AI boom continuing to drive growth for companies that are heavily investing in the space today.
Analysts from firms such as Morningstar have speculated that colossal AI capex among tech companies such as Amazon, Microsoft, and Alphabet could negatively impact their stock prices over time.
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