In the wake of the Great Recession of 2008, the stock market got involved in cloud computing. New cloud IT infrastructure – the backbone of what became known as SaaS – fueled a boom in profitability for early adopters. Cloud computing growth is still alive and well and should continue to expand for the foreseeable future.
But after more than a decade of low capital spending on technical infrastructure thanks to the cloud, Internet technology is evolving once again. Often referred to as the “metaverse,” data that travels across the web to the cloud and beyond is booming. Big Tech takes the lead with meta pads (dead -1.73%) Most notably, they are spending more on that effort — and benefiting from it.
But Meta Platforms is not alone. Prepare for a resurgence in technical infrastructure spending by a number of companies in the coming years – and prepare to profit from the metaverse equipment suppliers.
Meta sacrifices big profits for capex, but it’s not alone
Meta has thrilled shareholders this year with a dividend that could have been—had it not been for CEO Mark Zuckerberg’s insistence on investing in the metaverse. Purchases of property and equipment (capital expenditures, or simply “capital expenditures”) were $9.4 billion in the third quarter, more than double the $4.4 billion at the same time last year. Most of this spending spree is on data centers and related chip equipment.
For the whole of 2022, capital expenditures are expected to be in the range of $32 billion to $33 billion before jumping to $34 billion to $39 billion in 2023. Meta says AI and data centers are driving this surge in capital spending. While capital expenditures on the Meta are taking up the heat, everyone is investing in the metaverse – essentially, a file The next wave of web and cloud-based innovation.
the alphabet (Google -0.67%) (The Google -0.61%) It is investing heavily in data centers and artificial intelligence (AI) this year to support things like mobile camera-based search (Google Lens and DeepMind AI, for example). Its capital expenditures were $23.9 billion in the first nine months of 2022, an increase of 31% year over year.
Amazon‘s (AMZN -0.43%) Capital expenditures totaled $59.4 billion over the past twelve months, an increase of 14% over the same period last year. AWS’ cloud segment operating expenses have specifically driven fees, jumping 32% during the first nine months of 2022.
Microsoft‘s (MSFT -0.69%) Spending was the most complex among the big tech companies. Capital expenditures have jumped 5% over the past 12 months reported, including an 8% year-over-year increase to $6.28 billion in Fiscal first quarter 2023 (For the three months ending in September).
How should investors close the “capital gap”?
Other companies outside of the big tech space are also spending on new equipment that will support the next generation of web-based technology. The bottom line here is that there is a huge boom happening in the technical infrastructure. It puts pressure on profits at the companies making the purchases, but it will be a tailwind for suppliers.
nvidia (NVDA 3.06%) He is one of them. Although there were issues in the video game segment, data center sales skyrocketed. Nvidia’s data center sales rose 61% to $3.8 billion in the most recent quarter reported. With tech giants ramping up their capital expenditures on equipment, Nvidia has a lot to gain in this department.
Qualcomm (QCOM 0.01%) It could be another beneficiary, but not to the data centers themselves. Once the computing backbone of the future Internet is built, new mobile devices will be required to take advantage of the metaverse. Currently, this means smartphones that have a 5G mobile network chip. But later on, that could also mean augmented and virtual reality headsets (Qualcomm provides processors for Meta Quest VR devices). Qualcomm’s Internet of Things segment, which includes AR/VR hardware, grew 31% year over year in the past quarter to $1.8 billion.
Meta recently became a punching bag for massive spending on the metaverse, but it’s not alone in investing in the future of the internet. For big tech contributors, the process can be painful as it means profit margins deteriorate. But in the meantime, invest in metaverse suppliers It can help fill the gap as it expands from booming capital expenditures to data centers, related equipment, and the development of new hardware.
Susan Fry, CEO of Alphabet, is on the board of The Motley Fool. John Mackie, CEO of Whole Foods Market, an Amazon company, is a member of The Motley Fool’s Board of Directors. Randy Zuckerberg, former director of market development and spokesperson for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Nicholas Rossolillo And his clients have positions in Alphabet (C Shares), Amazon and Meta Platforms, Inc. and Nvidia and Qualcomm. Motley Fool has positions at Alphabet (A), Alphabet (C), Amazon, and Meta Platforms, Inc. , Microsoft, Nvidia, and Qualcomm. Motley Fool has a profile Disclosure Policy.