Buy Now, Expense Later

The S&P 500’s strong earnings growth is less durable and less reliable than it appears because AI capital spending is boosting suppliers’ profits before hyperscalers fully recognise the associated depreciation.

• S&P 500 earnings are expected to grow 28% in 2026, versus a long-term rate of 10%, while the index trades at about 20 times forward earnings.
• The five largest hyperscalers are expected to spend around $800 billion on capex in 2026, up 96% from 2025, rising to $1.1 trillion in 2027 and $1.2 trillion in 2028.
• Hyperscalers are expected to record roughly $201 billion of depreciation and amortisation in 2026, far below current capex, while semiconductor, hardware, industrial and utility companies account for about half of this year’s consensus S&P 500 earnings growth.
• Goldman Sachs estimates that AI capex will add 11 percentage points to S&P 500 earnings growth in 2027, but depreciation will offset nearly half of that benefit, reducing the net contribution to about 7 points.
• By 2028, Goldman expects rising depreciation to offset the earnings uplift from continued AI investment entirely, while the revenue opportunity remains uncertain: Anthropic has discussed a potential addressable market above $30 trillion, against an expected $100 billion annualised revenue run-rate by year-end 2026.

Takeaway: Investors should not treat the current 28% earnings-growth rate as a stable basis for a 20-times forward valuation; the outlook depends on whether AI revenues grow fast enough to absorb rising depreciation, and Seilern is assessing this uncertainty through its investments in Alphabet and Microsoft.