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2026 will be the reckoning year for the ’’AI Economy".
So far in 2025, US firms’ planned capex on AI-related projects is set to exceed $400 bn.
As you see from the chart below, big tech capex as % of EBITDA is now running around 60%, which is similar to AT&T’s (NYSE:T) 72% at the peak of the 2000 telecom bubble.
In Q2 2025, the capex-to-operating cash flow ratio of big tech AI investors reached 72% — the highest on record.
This capex has doubled in two years.
Companies are using their earnings to fund capex so far, but in 2026, they will likely be turning to the next phase of capex-led economic growth.
Debt-funded capex.
AI capex mechanically adds to US GDP, and it will keep doing so until the ROI reckoning day comes - are these investments profitable?
But the switch from cash-funded to debt-funded big capex is always a risky moment for these cycles.
All the largest recessions and slowdowns (e.g. Asian tigers, GFC, China) happen as a result of a private sector credit bubble, which inevitably bursts.
We are nowhere there yet, and so far, we are enjoying the cash-funded phase of the AI capex cycle.
But 2026 will be a crucial year: will we deliver on ROI, or will we add more risk with a debt-funded capex cycle that produces dysmal returns on investment?
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This article was originally published on The Macro Compass. Come join this vibrant community of macro investors, asset allocators and hedge funds - check out which subscription tier suits you the most using this link.