February 12, 2025
The emergence of generative artificial intelligence (GenAI) has catalyzed a surge of capital expenditures (capex) directed at building out AI infrastructure. The “Big Four” hyperscalers (Meta, Amazon, Microsoft and Alphabet) are expected to spend over $300 billion on capex in 2025, up from $225 billion in 2024. A significant portion of this will be directed to AI-related equipment, including semiconductors, data centers and the tools that power them. Some critical debates have emerged as investors attempt to forecast the industry landscape. In our view, the two most important factors that will shape the AI sector are (1) the ability of scaling laws to continue to advance large language models, detailed in Part 1 of this white paper series, and (2) the return on investment (ROI) from AI-related spending (“ROAI”), which will be the focus of this note. It remains very early in the adoption curve for AI, but there is encouraging evidence that AI solutions can significantly boost productivity. The recent news from China’s DeepSeek strengthens our hypothesis that as models improve and costs decline, AI use cases will proliferate and deliver strong ROAI across the economy.