Global Fund Manager Survey Capex too hot right now BofA February Global Fund Manager Survey Bottom Line: FMS sentiment stays uber-bullish…asset price upside in Q1 harder when all positioned for it; investors most OW commodities since May'22, most OW stocks since Dec'24, most UW bonds since Sep'22; FMS cash 3.4% up from record-low 3.2%. On Macro: "run it hot" so hot right now…most optimism on "boom" since Feb'22, on >10% EPS growth since Aug'21, on growth since Aug'21; but capex too hot right now …CIOs telli ...

Core Insights - Amazon's Q4 earnings report showed an EPS of $1.95, slightly below the expected $1.96, while net sales reached $213.39 billion, exceeding the estimate of $211.49 billion [1] - AWS net sales grew by 24%, surpassing the expected 21%, with total sales of $35.58 billion compared to the street's estimate of $34.88 billion [1] - The company guided for Q1 net sales between $173.5 billion and $178.5 billion, lower than the street's expectation of $175.54 billion [1] - Amazon's capex forecast for 2026 is set at $200 billion, significantly higher than the previous estimate of $146.1 billion, raising concerns among investors [1][2] - Despite the initial drop in stock price, 95% of analysts maintain a "buy" rating on Amazon, indicating strong long-term confidence in the company's growth potential [1] Amazon's Financial Performance - Q4 operating margins were reported at 11.7%, aligning with market expectations [1] - North American net sales for Q3 were $127.08 billion, matching consensus estimates [1] - AWS margins have been stable, hovering around the mid-30% range, with potential for growth above 40% in the future [2] Market Reactions and Analyst Insights - The significant increase in capex has led to a nearly 11% drop in Amazon's stock price in after-hours trading, reflecting investor concerns about the sustainability of such high spending [1][2] - Analysts suggest that the elevated capex is necessary to meet growing demand for AI and cloud services, with Amazon needing to invest aggressively to maintain its competitive edge [2] - The bullish sentiment among analysts is driven by Amazon's strong position in the cloud market and the potential for significant operating margin expansion in the coming years [2][3] Competitive Landscape - Amazon's capex forecast is compared to Alphabet's, which announced a capex range of $175 billion to $185 billion, indicating a broader trend of increased investment in technology infrastructure among major players [1][2] - The competition in the cloud space is intensifying, with AWS facing pressure from Azure and Google Cloud, both of which are also ramping up their investments [2][3] - Analysts believe that the demand for compute power will continue to drive spending across the tech sector, benefiting companies involved in semiconductor manufacturing and AI technologies [2][3]

Company Overview - Proactive is a financial news publisher that provides fast, accessible, informative, and actionable business and finance news content to a global investment audience [2] - The company operates with a team of experienced and qualified news journalists across key finance and investing hubs including London, New York, Toronto, Vancouver, Sydney, and Perth [2] Market Focus - Proactive specializes in medium and small-cap markets while also covering blue-chip companies, commodities, and broader investment stories [3] - The content delivered by the company includes insights across various sectors such as biotech and pharma, mining and natural resources, battery metals, oil and gas, crypto, and emerging digital and EV technologies [3] Technology Utilization - Proactive is recognized for its forward-looking approach and enthusiastic adoption of technology to enhance workflows [4] - The company employs automation and software tools, including generative AI, while ensuring that all content is edited and authored by humans to maintain best practices in content production and search engine optimization [5]

Core Insights - The significant capital expenditure (capex) forecasts indicate a strong commitment from major companies towards AI and related technologies, with a notable portion of the spending directed towards robotics and satellite technologies [1][2][4] - Approximately 80% of the capex is expected to be AI-related, reflecting the companies' confidence in the future of AI and its potential impact on their business models [2][4] - The anticipated $600 billion in capex from a select few companies suggests a substantial shift in revenue and profit pools within the software industry, indicating a potential disruption [3][4] Company-Specific Insights - Companies like Google and Amazon are expected to continue investing heavily in AI, with their capex numbers signaling a long-term commitment to this transformation [5][6] - The market's reaction to these capex announcements, particularly in the software sector, raises questions about the competence of these companies in navigating the evolving landscape [4][5] - The ongoing investment in AI infrastructure is seen as a precursor to increased utility and disruption across various sectors, not limited to software [6][7]

Economic Indicators - Challenger job cuts increased significantly from 35,500 to 108,000, indicating a rise in corporate layoffs [2][4] - First-time unemployment insurance claims rose sharply from 29,000 to 231,000, suggesting potential labor market weakness [2][3] Market Reactions - The overall market, particularly the S&P 500, is experiencing volatility, with the E-Minis down 41 points at the start of the day [8] - Precious metals like gold and silver are also seeing declines, with gold down $101 and silver down 10% [8][10] Company Insights - Amazon is expected to report strong revenue numbers from its retail business, but there is concern regarding its capital expenditures (capex) and how it will impact stock performance [11][12] - The market is increasingly scrutinizing capex spending, which was previously viewed positively, indicating a shift in investor sentiment [12][14]

Core Viewpoint - The article emphasizes the importance of conducting personal in-depth research and due diligence before making investment decisions, highlighting the inherent risks involved in trading [3]. Group 1 - The analyst expresses a beneficial long position in shares of companies like GOOG and AMZN, indicating confidence in their future performance [2]. - The analysis aims to provide contrasting views on the portfolio, suggesting a unique perspective on stock investments [1]. Group 2 - The article clarifies that the analysis is for informational purposes only and should not be considered professional investment advice [3]. - It notes that past performance is not indicative of future results, underscoring the uncertainty in investment outcomes [4].

Summary of the 2026 Capex Outlook Conference Call Industry Overview - The report focuses on the U.S. business fixed investment landscape, particularly capital expenditures (capex) for 2026, influenced by various economic factors and legislative changes [2][9][12]. Key Points and Arguments Current Capex Growth - Real business fixed investment grew at a 6.5% annualized rate in the first three quarters of 2025, primarily driven by a surge in equipment imports [2][5]. - Domestically-produced capex increased at a 2.2% annualized pace, aligning with overall GDP growth but below typical expansion rates [2][8]. Legislative Impact: One Big Beautiful Bill Act (OBBBA) - The OBBBA is expected to incentivize business investment by lowering the cost of capital, with an estimated boost of about 3 percentage points (pp) to capex growth in 2026 [2][12][33]. - Key provisions include full expensing of manufacturing structures and restoration of full expensing for equipment and R&D investments [12][14]. Financial Conditions - Financial conditions have eased since early 2025, contributing an estimated 0.8pp boost to capex growth in 2026 [36][39]. - Bank lending standards for business loans have relaxed, with healthy loan demand reported [36][38]. Artificial Intelligence (AI) Investment - Strong demand for AI investment is projected to contribute approximately 2pp to actual capex growth in 2026, although much of this will be offset by imports, resulting in a net GDP growth boost of about 0.1-0.2pp [41][48]. - The impact of AI on measured capex growth is expected to be understated due to the treatment of semiconductor purchases and tech-related intellectual property in national accounts [41][42]. Tariff Effects - Higher tariffs negatively impacted capex in 2025 by increasing capital goods costs and uncertainty, with a projected drag fading from 1.5pp in 2025H2 to about 0.5pp in 2026 [53][57]. Forecasts and Risks - The forecast for real capex growth in 2026 is set at 5.5%, exceeding the consensus forecast of 3% [3][65]. - Risks include potential tighter financial conditions or weaker aggregate demand, which could negatively affect capex [3][68]. Sector-Specific Insights - The manufacturing sector is expected to benefit the most from the OBBBA provisions, while the utilities sector may face increased costs due to the phaseout of clean energy credits [18][20]. - Investment in computer and electronics manufacturing remains high relative to output, which may limit growth upside in 2026 [22][23]. Additional Important Insights - The volatility in software prices has affected capex growth estimates, with significant fluctuations observed in the software deflator impacting real capex growth [7][8]. - The Dodge momentum index indicates a recent uptick in investment momentum, suggesting a positive outlook for nonresidential building projects [61][65]. This summary encapsulates the critical insights from the conference call regarding the U.S. capex outlook for 2026, highlighting the interplay of legislative changes, financial conditions, and sector-specific dynamics.

Economic Growth and Investment - The economy is performing well, with second-quarter growth at 8%, and a forecast of 3.5% to 4% growth for the third quarter [2][3] - There is a significant capital expenditure (capex) boom driven by policies that allow full expensing, contributing to a building boom [3][9] - Investment spending is at a multi-decade high, which is expected to enhance the economy's supply-side potential [9] Interest Rates and Monetary Policy - The neutral interest rate is likely lower than market expectations, suggesting that rates should be lower to stimulate economic activity [1] - High interest rates are currently impacting the economy, but there are concerns that cutting rates too much could lead to excessive debt issuance and potential market bubbles, particularly in AI [4][5] - The yield curve remains flat, indicating that inflation expectations are well-anchored, and a capex boom could be disinflationary [6] Inflation and Wages - Inflation is primarily seen in services, with expectations that prices will decrease due to falling rents and increased housing supply [5][6] - Real blue-collar wages have increased by 1% in the first nine months of the year, marking one of the strongest performances for any new administration [12] - Policies such as the working families tax cut are expected to raise wages through capital investment, which will help address cost of living issues [10][12]

Group 1 - The current excitement around AI is leading to a risk-taking environment among investors, with a potential for a market reset in the future [2][5][15] - There is a significant increase in capital expenditures (capex), with expectations for annual investments to nearly triple to over $2 trillion by 2030, driven by various industries beyond just technology [8][9] - The market is currently experiencing supernormal growth, with companies in the AI sector seeing annual growth rates of about 40% over the past five years [3][12] Group 2 - The conversation around AI is evolving, with a shift from heavy capex to the application of technology expected, although this transition has not yet fully occurred [4][11] - There is a belief that the current investment landscape is not indicative of a bubble, as substantial investments are being made across multiple industries, including utilities and industrials [11][12] - The performance of stock prices is closely tied to the ongoing bullish sentiment around AI, with companies rewarded for increasing their capex spending [18][20]

Investment Rating - The report assigns an "Overweight" rating to SSE, indicating that the stock's total return is expected to exceed the average total return of the analyst's industry coverage universe over the next 12-18 months [5]. Core Insights - SSE's FY25 results were solid, with a headline EPS of 161p, which was broadly in line with consensus expectations of 159p [7][8]. - The company has reduced its 5-year capex plan from £20.5 billion to £17.5 billion, which is seen positively as it alleviates market concerns regarding balance sheet gearing and funding for network growth capex [3][7]. - The target for renewable capacity by FY27 has been lowered from 9GW to approximately 7GW, which reflects a cautious approach to capital allocation [3][12]. - The market may interpret the capex reduction as a positive signal regarding the upcoming UK Electricity Transmission regulatory review [3][12]. - SSE's share price has shown a recovery of 12% year-to-date, outperforming the FTSE 100 and the Utilities Sector [3]. Financial Performance Summary - For FY25, SSE reported EBIT of £2.4 billion, with adjusted headline numbers excluding a £250 million non-cash impairment in the Southern European Renewables pipeline [8][12]. - The company indicated a dividend per share (DPS) of 64.2p, which aligns with expectations and represents a 7% year-on-year growth [8][12]. - The FY27 EPS guidance was reiterated at 175-200p, which is expected to be supported by regulated inflation-linked contracts [13][12]. Future Guidance - The report notes that SSE did not provide explicit EPS guidance for FY26, but estimates suggest operating profit of £2.3-2.4 billion and EPS of 156-159p, which is marginally below consensus expectations [9][12]. - The company anticipates 40% growth in renewable volumes by FY27, implying a total of 18.6 TWh [13]. - SSE's balance sheet at the end of FY25 showed net debt of £10.2 billion, in line with consensus, and a net debt to EBITDA ratio of 3.2x [12].