Good morning, investors. AI enthusiasm has pushed markets to record after record over the last two years, and that reflects investors’ optimism about what the biggest technology companies in the world are doing with their cash.

But all that spending has brought the sector to an inflection point.

The Magnificent 7 are abandoning the “asset-light” playbook that made them so dominant.

The high-margin, high-growth businesses that generated exponential returns over the past decade are morphing into capital-intensive models where billions of dollars in AI spending could erode returns on capital, according to investor and researcher Kai Wu of Sparkline Capital. 

Apple, Microsoft, Amazon, Meta, Tesla and Nvidia have each proved that intangible assets — intellectual property, brand, network effects — can generate superior returns compared to old-line industrial firms.

That efficiency turned them into the stock market’s biggest winners and heaviest contributors. 

But that gap could narrow in the coming quarters as the group transitions from asset-light to asset-heavy, Wu told Opening Bell Daily.

Since 2012, their capital expenditures have climbed from just 4% of revenue to 15%. 

Meta alone is set to spend 35% of sales on data centers and servers, a level that’s similar to that of the average American utility stock. 

Microsoft and Alphabet also hover in utility territory, with projected capex-to-revenue ratios of 28% and 21%, respectively. 

But the AI arms race leaves them little choice.

The Magnificent 7 and others are competing to build the most powerful and popular computing platforms, betting that whoever invests the most in infrastructure will win out. 

Magnificent 7 spending is now so large that it materially adds to US GDP growth.

Meanwhile, the group now accounts for more than a third of the S&P 500’s value, which means the fortunes of both the market and economy are increasingly tied to this single capital cycle. 

“The AI investment boom is reminiscent of past technology-led capital cycles, such as the railroad and internet booms, in which investors into physical infrastructure were saddled with huge losses,” Wu said.

That said, today’s technology giants have far more robust balance sheets, cash flows and moats than those of the past.

Not only that but it’s possible that AI adoption indeed lives up to even the most ambitious expectations. 

Following the news this week that Nvidia will invest $100 billion into OpenAI, Bank of America strategists published a note forecasting that the move could generate up to $500 billion in returns over time.

That view — mirrored by those of UBS, Morgan Stanley and others across Wall Street — reinforce the establishment view that AI has in fact ushered in a new industrial revolution.

Yet it remains true that Big Tech is spending like the utilities sector. 

For investors betting on this shift toward asset-heavy business models, the payoff hinges on whether the next decade of hardware can compound as well as the last decade of software.

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📉 US stocks declined for the second day in a row ahead of key labor market data due this morning, which will reveal the latest weekly jobless claims. Initial unemployment claims eased last week after a brief spike the week prior.

🔍 US expands its national security investigations. The White House is looking into imports of robotics, industrial machinery, and medical devices in a move that could pave the way for new tariffs. (CNBC)

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📰 I’m Phil Rosen, co-founder and editor-in-chief of Opening Bell Daily. I’ve published books, lived on three continents, and won awards for my journalism, which has appeared in Business Insider, Fortune, Yahoo Finance, Bloomberg and Inc. Magazine.

I write our flagship newsletter to prepare you for each trading day — unpacking markets, economic data and Wall Street with analysis you won’t find anywhere else.

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