“Colossal Tech” spending and the multiplier effect

Executive summary

The capital expenditures (capex) from the Magnificent Seven¹ are 4x-8x larger than the Marshall Plan, Apple’s Foreign Direct Investment (FDI) into China, US aid to all nations last year, and the gross domestic product (GDP) of around 75% of all countries.² It isn’t just “Big Tech;” it’s “Colossal Tech.” History has shown that spend at this level changes the course of nations. And the amount is growing. As economists weigh the impact of tariffs, interest rates and the national debt, the Colossal Tech spending may not merely be a factor but instead the factor in forecasting the US economy.

In this paper, we discover why the scale of tech investments is the most important factor to consider when assessing US economic growth and discuss the following:

• The difficulty of conceptualizing large numbers: In investing circles, it is increasingly popular to discuss how difficult it is for humans to understand exponential growth. Our minds work in a linear way, so it is counterintuitive that doubling a small number again and again leads to a very large number very quickly.
• The Marshall Plan: In 1948, the United States introduced the Marshall Plan, which sought to rebuild the war-torn economies in Europe after World War II. Publicly, the chief administrator billed the plan as “the most generous act of any people, anytime, anywhere, to another people.” Sixteen nations, including the United Kingdom, France, Germany and Norway, all received aid.
• Apple in China: In 2016, Apple Computer agreed to spend US$275 billion over the following five years to enhance its manufacturing in China.³ That was US$55 billion per year, about twice the size of the Marshall Plan in today’s dollars. The goal of this investment, at least as expressed to shareholders, was simple and pure: generate a strong return on investment for the company.
• The AI multiplier effect: One of the most common questions we receive these days is: “When will we see the effects of AI?” We would argue that today’s capital expenditure (capex), which is a proxy for overall spending, is happening right now.

The Importance of AI spend

It is our view that AI spend may be the thing to watch to track the health of the US economy.

The Marshall Plan was implemented when there was no European Union. It succeeded despite the complexity of 16 different currencies, border patrols, controlled immigration and tariffs between countries. Similarly, the story of China during the years of the FDI from Apple was not uncomplicated. There was a fear of a housing bubble, the re-education of highly successful internet CEOs, and a large rise in international concern over technology sharing, including western bans of certain products. And yet China continued to make massive economic and manufacturing gains.

As these other examples show, the most accessible way out of many economic problems is growth. Yes, the US economy has some issues today, including tariffs, debt levels, housing starts, student loans and many other legitimately concerning trends. But we believe the sheer size and potency of today’s AI spend should not be overlooked.

We do not consider ourselves experts in economics. However, we have studied technology and tech spending for over 25 years. And we can confidently say that we are experiencing one of the biggest investment cycles in human history, one that dwarfs the largest successful spending plans of the past. The United States and the West stand to be massive beneficiaries of this investment. Thus, what happens with AI capex may very well be the most important driver of the US economy and markets going forward, and, on that basis, we believe the future looks bright.

In investing, there are so many different and important data points. The objective of an investor is to have a clean and clear thought and to distill which of many data points matter.

In our view, although tariffs, debt levels and inflation are very important to forecasting the US economy right now, the big thing to watch is capex spend.