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AI capex lifts profit margins for Big Tech, not most S&P 500 firms
Chief economist Torsten Sløk at Apollo says Mag Seven net margins have risen to roughly 25% from about 15% in late 2023, while the Other 493 have stayed near about 10%.
LiveMint Markets, citing Apollo chief economist Torsten Sløk, said the AI spending boom has so far translated into higher profit margins for the technology and communications services sectors, while margins across many other industries remain flat or decline. Sløk’s view, according to the outlet, is that the timing of when nontech companies convert AI investment into returns matters for markets concentrated in a small set of names.
The outlet pointed to Sløk’s analysis that net profit margins for the Mag Seven have increased to around 25% from about 15% in late 2023, while the so-called Other 493 companies in the S&P 500 have net margins near about 10% and largely held steady over the past three years. LiveMint Markets said Sløk described the pattern as AI showing up in sellers’ margins rather than buyers’.
Sløk warned that if it takes longer for broader sectors to benefit, it raises downside risks to both the economy and the stock market due to how concentrated equity performance has become around the AI trade. The report also said Sløk expects margin expansion outside tech and telecom eventually, but emphasized that the speed of that payoff will likely shape market outcomes.
The outlet further cited Sløk saying many investors are expecting more tangible benefits from AI spending by 2028, which means investors may need evidence of improvement over the next two years. LiveMint Markets reported that Sløk linked a slower payoff to the risk of worsening economic conditions and potentially triggering a correction in the S&P 500.
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