A surge in capital expenditure related to artificial intelligence could enhance earnings per share estimates for the S&P 500 in the years 2026-27, according to short-seller Jim Chanos.
AI Capex Could Boost S&P 500 EPS
A significant rise in AI-related capital expenditure (capex) is expected to elevate S&P 500 earnings per share (EPS) estimates.
Chanos highlighted that the accounting practices for AI investments create a disparity between immediate revenue and profit recognition and the capitalization of costs. This discrepancy is anticipated to result in a profits “magic” during periods of increased capital spending, Chanos added.
The boost in EPS estimates stems from the way AI-related expenses are accounted for, with revenues and profits being recognized immediately, while costs are largely capitalized. This method of accounting can lead to an apparent surge in profits during times of heavy investment.
Chanos’s insights suggest that the financial impact of AI-related investments will be significant for the S&P 500, potentially altering the landscape of corporate earnings in the coming years.
Dispelling AI Profitability Skepticism
Last month, Daniel Newman highlighted how major tech companies like Meta Platforms (NASDAQ:META), Microsoft Corp. (NASDAQ:MSFT), Amazon.com Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOGL) validated their AI capex investments with substantial returns. This marked a pivotal moment, dispelling skepticism about AI’s profitability.
Furthermore, analyst Barton Crockett emphasized that Meta’s AI investments justified higher capex, with significant revenue growth and high EBITDA margins, showcasing a healthy return on investment.
JP Morgan projected a $200 billion surge in AI spending for top U.S. cloud service providers, underscoring the intense competition to dominate the AI sector.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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