By Martin Baccardax
Stock markets are getting a solid boost from a temporary truce in the U.S.-Iran war, and hopes that the conflict will come to a resolution over the coming weeks, as focus shifts from geopolitics and inflation concerns to the underlying drivers of equity and economic growth.
And there aren't many of those bigger than the billions being committed to the artificial intelligence investment boom, which has arguably been the single most important driver of U.S. stocks over the past 3.5 years.
Thankfully for the S&P 500, which gained only 1.3% over the past six months largely as a result of skepticism tied to the new technology and the disruption it could bring to various sectors of the economy over the coming years, AI appears to be getting some of its mojo back.
Bank of America estimates the biggest AI hyperscalers spent $166 billion over the three months ending in March, a 13% increase from last year that points to a $750 billion tally for this year and a staggering $872 billion total for 2027.
"Capex sustainability into [next year] remains the big question, though we believe a continued wave of data center buildout partnership and announcements over the last two months help improve the visibility," said BofA analysts led by Vivek Arya.
Facebook parent Meta Platforms unveiled the first AI model, known as Muse Spark, from the so-called superintelligence lab it created to supplant the failure of its metaverse project, earlier this week. It also inked a new $21 billion compute power deal with CoreWeave, taking its contract total to $35 billion, as it continues to ramp up spending on AI infrastructure.
Oracle, meanwhile, has poached a well-regarded executive from Schneider Electric, Hilary Maxson, to serve as its "built for capex" finance chief, tasked with driving "efficient approaches in allocating capital, delivering capacity" while producing "profitable, recurring revenue" for the cloud infrastructure giant.
It's also reportedly working with Pacific Investment Management Co., better known as Pimco, to finance its $16.3 billion data center project in Saline Township, Michigan.
The spending, of course, and the optimism that it carries won't likely assuage concerns that it's both eating into cash flow and eroding broader profit margins -- at least not until the sector's biggest players can start showing a clear line of sight into when and how they'll start making money from it.
BofA's Arya thinks that might be sooner than markets expect.
"Capex is an upfront investment for future token generation abilities (i.e. revenue in the AI world), and free cash-flow margin could recover back to a 5% to 10% level over the next few years as return on investment improves with new second generation AI applications such as [the agentic interface] OpenClaw," he said.
Seeing that timeframe getting shorter should also provide a sentiment tailwind for the wider tech space, as demand for compute accelerates amid broader AI adoption.
That stokes the need for data center essentials such as memory, power, storage, and cooling as well as the traditional AI GPU makers, like Nvidia, and so-called neocloud providers, such as CoreWeave.
"I'm certain compute equals revenue," Nvidia CEO Jensen Huang told Morgan Stanley's Technology, Media & Telecom Conference in San Francisco last month.
"I'm certain also that compute equals GDP," he added. "Therefore, every country will have it because not one country in the future will say, 'Guess what? You know, we're going to opt out on intelligence.'"
Compute demand, and the AI trade, are also central to stock market performance. The biggest tech companies still comprise around a third of the S&P 500's overall value, and continue to power around a fifth of its overall earnings growth.
And many of them are starting to look inexpensive.
"We're going to look back at the price of some of these stocks, like Amazon at 28 times earnings and Microsoft at 20 times earnings, and say: 'what was everybody thinking not piling into these names hand over fist?'," Jim Lebenthal, chief market strategist at Cerity Partners, told CNBC on Thursday.
Others already are.
An index of the so-called Magnificent Seven tech giants has risen more than 9.8% since the market's March 30 trough, well ahead of the 7.5% gain for the S&P 500.
And with earnings updates from the biggest AI players later in the month -- with Nvidia slated to report at the end of May -- the bullish tenor is likely to continue.
Write to Martin Baccardax at martin.baccardax@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 09, 2026 15:20 ET (19:20 GMT)
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