Big tech giants to spend more on capex than payroll in 2026 amid AI boom: HSBC

Artificial intelligence is a buzzword that some claim will be the next big thing, while others call it a bubble ready to burst. However, HSBC said in a note that big tech companies – including Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Oracle – could continue to increase capital spending, as AI is still in the early stages of a “megacycle”.

In its latest report, HSBC Global Investment Research said innovation in Large Language Models (LLMs) continues. The LLM has dramatically improved its intelligence over the past few months, with Agentic AI moving from an exciting prospect to a reality.

“After nearly three years of AI-driven euphoria following the GPT launch, the market now appears to be generally concerned about tech names, reflecting rapid increases in capex budgets and debt and off-balance-sheet structures, while AI is only just beginning to prove its ability to monetize. While tech stocks have largely outperformed and are relative to 2020 and 2020 performance. Year-to-date is more muted,” the report said.

HSBC analyzed the cash flow health of seven major tech companies and found that they are exposed to AI differently from a hardware or software standpoint. He expects these companies to generate $1.3 trillion in operating cash flow before taxes and interest this year, although their capital allocations may vary.

“We observe a sharp increase in capital expenditure as a percentage of total expenditure and a decreasing proportion allocated to shareholder returns,” it said. The company expects big tech companies to spend 61% of their cash flow on capex this year, up from 46% in 2025. It added that the proportion allocated to buybacks and dividends could decline from 22% and 6% in 2025, respectively, to 16% and 5% in 2026.

As a result, HSBC expects these big tech companies to post revenues of $2.8 trillion in 2026, compared to $2.3 trillion in 2025. Nvidia will be the fastest growing, contributing 33% to the group’s growth in absolute terms, according to the firm. “Other key contributors to Tech-7 revenue growth in 2026e are Alphabet, which accounts for 16.5% of Tech-7 total revenue growth in 2026e, and Amazon (15.9%). Oracle’s growth acceleration in 2026-27 is tied to its OpenAI cloud revenue.”

By maintaining positive (and growing) cash balances in 2026, Nvidia and Microsoft are well positioned, benefiting from large exposures to infrastructure and compute. It maintains a ‘buy’ rating on Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia and Oracle with a potential target of more than 10%. However, he maintained a ‘hold’ rating on Apple, seeing only marginal gains.

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