After the Great Recession of 2008, the stock market went crazy for cloud computing. The new cloud IT infrastructure—the backbone of what has come to be known as software as a service (SaaS)—has skyrocketed profitability for early adopters. The growth of cloud computing is alive and well and should continue to expand in the near future.
But after more than a decade of capital investment in technology infrastructure thanks to the cloud, Internet technology is evolving again. The amount of data moving in and out of the cloud via the web, often referred to as the “metaverse,” is growing exponentially. Big tech leads the way meta platform (meta 2.19%) Most notably, we are increasing our spending on this initiative and raising the fever for it.
But it’s not just the meta platform. Wait for a resurgence in spending on technology infrastructure by many companies in the coming years and prepare to profit from your Metaverse equipment suppliers.
Meta sacrifices big profits for capex, but that’s not all
If it weren’t for CEO Mark Zuckerberg’s insistence on investing in the Metaverse, this year’s Meta would make shareholders laugh. Asset and equipment purchases (capital spending, or simply “capital spending”) hit a whopping $9.4 billion in the third quarter, more than doubling his $4.4 billion in the same period last year. A large portion of this spending is spent on data centers and related chip equipment.
Capital spending for the full year 2022 is expected to be in the range of $32 billion to $33 billion, jumping to $34 billion to $39 billion in 2023. Meta says AI and data centers are driving this boom in capex spending. Meta capex is heating up, but really everyone is investing in the Metaverse. The next wave of web and cloud-based innovation.
alphabet (Google -4.28%) (goog -4.39%) has invested heavily in its data centers and artificial intelligence (AI) this year to support things like mobile camera-based search (such as Google Lens and DeepMind AI). Capital spending in the first nine months of 2022 was $23.9 billion, a 31% increase over the previous year.
Amazonof (AMZN -5.51%) Total capital spending in the last 12 months was $59.4 billion, up 14% from the same period last year. Operating expenses in the AWS cloud segment are particularly driving costs, with him up 32% in his first nine months of 2022.
How should investors close the “capex gap”?
Beyond the big tech companies, companies are also investing in new equipment to support the next generation of web-based technologies. The point here is that there is a big boom in technology infrastructure. It is putting pressure on the profits of the companies that buy it, but it will be a tailwind for suppliers.
NVIDIA (NVDA 0.34%) One of them. The video game segment is troubled, but data center sales are booming. Nvidia data center sales were up 61% to his $3.8 billion in the last reported quarter. Nvidia has a lot more to gain in this sector as the tech giants ramp up capital spending.
Qualcomm (Qucom -0.28%) It could be another beneficiary, but not for the data center itself. As the computing backbone of the Internet of the future is built, new mobile devices will be needed to take advantage of the Metaverse. Today, that means smartphones with 5G mobile network chips. But in the future, it could also mean augmented and virtual reality headsets (Qualcomm supplies the processor for Meta’s Quest VR device). His Qualcomm’s IoT segment, which houses AR/VR devices, grew 31% quarter-on-quarter to $1.8 billion.
Meta has been a punching bag for huge spending on the Metaverse lately, but Meta isn’t the only investment in the future of the Internet. For the technology giant’s shareholders, the process can be painful because it means lower profit margins.But investing in Metaverse Supplier As we expand from skyrocketing capital expenditures to data centers, related equipment, and new device development, it can help bridge the gap.
Alphabet executive Suzanne Frey is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randy Zuckerberg, former director of market development and spokeswoman for Facebook and sister to his CEO of his platform, Mark Zuckerberg, is a member of the Motley Fool’s board of directors. Nicholas Rosorillo His clients hold positions at Alphabet (C stock), Amazon, Meta Platforms, Inc., Nvidia, and Qualcomm. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Amazon, MetaHe Platforms, Microsoft, Nvidia and Qualcomm. The Motley Fool Disclosure policy.