Hyper-Scaling AI Capex: S&P 500 Earnings Growth & Valuations - Reality or Hallucination?

AI capex is becoming an increasingly important driver of S&P 500 earnings, benefiting not only hyperscalers but also semiconductors, data centers, power, hardware and industrial infrastructure. At the same time, the investment cycle is becoming more capital intensive, with a growing share of spending directed toward shorter-lived compute assets that increase future depreciation and reinvestment requirements.

This report examines whether current earnings expectations and valuations adequately reflect those economics. While consensus continues to forecast expanding margins, sustaining that trajectory requires strong AI monetization, significant operating leverage, and attractive returns on incremental capital. With the equity yield cushion versus U.S. Treasuries already thin, even a modest earnings disappointment combined with multiple compression could have a disproportionately larger impact on S&P 500 valuations.