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AI reshapes industries, boosts productivity across sectors

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Nvidia ( NVDA ) surpasses $5 trillion market value, leading AI boom

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AI's reach extends beyond tech to power and industrial

sectors

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Investors shift focus to infrastructure beyond core tech

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By Akash Sriram

Oct 31 (Reuters) - A momentous week in the technology

sector made it clear there is no sign the boom in building

artificial intelligence infrastructure is slowing - despite the

bubble talk.

Nvidia ( NVDA ), whose processors are the AI revolution's

backbone, became the first company to surpass $5 trillion in

market value. Microsoft ( MSFT ) and OpenAI inked a deal

enhancing the ChatGPT maker's fundraising ability and OpenAI

promptly started laying groundwork for an initial public

offering that could value the company at $1 trillion.

Amazon ( AMZN ) said it would cut 14,000 corporate jobs, just

days before its cloud unit posted its strongest growth in nearly

three years.

These developments, along with numerous earnings calls and

interviews with executives, make clear that AI has cemented

itself as the single biggest catalyst for global corporate

investment and the engine of the market rally, even as some

question the sustainability of both.

SPENDING WITHOUT ENDING

Soaring revenue at Microsoft ( MSFT ), Alphabet and other

technology giants was expected. But more than 100 non-tech

global companies noted data centers on quarterly calls this

week, including Honeywell ( HON ), turbine maker GE Vernova ( GEV )

, and heavy equipment maker Caterpillar ( CAT ).

Sales in Caterpillar's ( CAT ) division that supplies data centers

jumped 31% in its most recent quarter. "We're definitely really

excited about the prime power opportunity with data centers,"

CEO Joseph Creed said this week.

"The AI supply chain now spans power, industrials and

cooling technology, and investors are looking at the entire

ecosystem rather than just core tech," said Ayako Yoshioka,

portfolio manager at Wealth Enhancement Group.

Goldman Sachs estimates global AI-related infrastructure

spending could reach $3 trillion to $4 trillion by 2030.

Microsoft ( MSFT ), Amazon ( AMZN ), Meta and Alphabet are expected to spend

roughly $350 billion combined this year.

AI investment is propping up global trade, with about 60% of

U.S. data-center capex spent on imported IT equipment, according

to Oxford Economics, much of it semiconductors from Taiwan,

South Korea and Vietnam.

At least two dozen companies representing more than $21

trillion in combined market value reported quarterly earnings or

spoke with Reuters about AI in recent days. Many, including

Procter & Gamble ( PG ) and Boliden, noted that the

hoped-for productivity gains, though uneven, are beginning to

show.

"We strongly believe the future contribution of artificial

intelligence within R&D, within developing innovation, will

steadily increase," Schindler CEO Paolo Compagna told

Reuters, though he said AI's impact is yet to be seen. The Swiss

lift and escalator maker raised its annual margin forecast last

week.

Year-over-year revenue growth in the U.S. tech sector is up

more than 15%, outpacing all other sectors, according to LSEG

data.

Apple ( AAPL ) said it was significantly increasing AI

investment and Amazon ( AMZN ) projected capital spending of $125 billion

in 2025.

WORRIES ABOUT OVERVALUATION

Since ChatGPT's debut in 2022, global equity values have

climbed 46%, or $46 trillion. One-third of that gain has come

from AI-linked companies, according to Bespoke Investment

Group.

Analysts warn of a quickening replacement cycle for servers,

accelerators and chips as each new generation delivers

exponential performance gains. The useful life of AI chips is

shrinking to five years or less, forcing companies to "write

down assets faster and replace them sooner," said UBS

semiconductor analyst Tim Arcuri.

The surge in AI-related spending has widened the gap between

investment and returns, with a Reuters analysis showing that

sales-to-capex ratios at major tech firms have fallen sharply as

outlays on chips and data centers grow faster than revenue.

Capital expenditures represent a larger chunk of cash generated

by operating activities for some companies, causing some

investor concern.

"If progress hasn't been made toward monetization within

three years, the market will start asking hard questions," said

Sumali Sanyal, senior portfolio manager at investment firm

Xponance.

Microsoft ( MSFT ) reported a record $35 billion in capex in its most

recent quarter and projected higher spending, prompting

Bernstein analyst Mark Moerdler to ask whether the company was

spending into a bubble. Microsoft ( MSFT ) Chief Financial Officer Amy

Hood responded that AI-related demand still outpaces Microsoft's ( MSFT )

spending. "I thought we were going to catch up. We are not," she

said.

Some companies are financing AI projects with debt. Oracle's

$18 billion bond sale last month was one of the largest

ever for a tech company, and it looks set to be surpassed by an

up to $30 billion bond sale from Meta Platforms ( META ). News

of its largest ever bond sale knocked Meta's shares down 11% on

Thursday.

Still, many economists say the AI cycle is far from

exhausted. Goldman estimates AI investment is currently less

than 1% of U.S. GDP, far below peaks of 2% to 5% seen during the

electricity and dot-com booms.

"We are in the early innings ... and the pace of AI

innovation is the fastest we have seen in decades," said Nick

Evans, portfolio manager at Polar Capital Technology Trust.