$600 billion in annual growth to $3-4 trillion in capital expenditure? JPMorgan Chase: Jensen Huang's "bragging" is achievable

Recently, Jensen Huang predicted that global annual spending on AI data centers will soar from approximately $600 billion this year to between $3 trillion and $4 trillion by 2030. This means that capital expenditures need to achieve an average annual growth of 42% over the next five years, raising market doubts: Is Jensen Huang "blowing smoke"?

In a recent report, JP Morgan pointed out that Jensen Huang's prediction of explosive growth in capital expenditures for AI data centers, while sounding extremely aggressive, is entirely achievable from a financial perspective. The bank's analysis suggests that the technology sector has sufficient capacity to fund this unprecedented investment boom through three major sources of financing: internally generated funds, private equity/venture capital investments, and external financing through debt or equity issuance.

Facing an Annual Funding Gap of $1.6 Trillion

JP Morgan's calculations show that by 2030, the technology sector will face an annual funding gap of up to $1.6 trillion.

JP Morgan's analysis first focuses on the cash flow and capital expenditure situation of the global technology sector (including MSCI Global Information Technology and Communication Services Index constituents plus Amazon and Tesla). The report estimates that by 2025, the sector's annual operating cash flow will be approximately $1.6 trillion, while capital expenditures, including R&D, will be around $1.3 trillion, resulting in a financial surplus of about $300 billion.

The report assumes that by 2030, spending on AI data centers will reach the midpoint of Jensen Huang's predicted range, which is $3.5 trillion. At the same time, it assumes that AI data center investment will be $600 billion in 2025, with the remaining $700 billion in capital expenditures growing at an average annual rate of 11% over the past three years to $1.1 trillion by 2030. By then, total capital expenditures in the technology sector will reach $4.6 trillion.

Even if operating cash flow is assumed to grow at a rate of 20% per year to $4 trillion, the sector will still face a funding gap of $600 billion.

When considering shareholder returns, the funding pressure will increase further. The report assumes that shareholder returns in the technology sector will grow from $700 billion this year to approximately $1 trillion by 2030. Including this expenditure, the annual total funding gap for the technology sector will expand to $1.6 trillion by 2030.

Private Equity and Venture Capital: Key Forces to Fill the Gap

In the face of a trillion-dollar funding gap, private capital will become the first important supporting force. JP Morgan points out that private equity (PE), venture capital (VC), and infrastructure funds are pouring into the digital infrastructure and AI sectors with unprecedented enthusiasm.

The report cites data indicating that the annual fundraising amount for digital infrastructure is currently about $70 billion, while according to Pitchbook, the annual scale of PE/VC capital directed towards AI and machine learning has reached $260 billion this year. Combined, private markets could provide approximately $330 billion for AI investments by 2025.

JP Morgan predicts that if this private capital grows at a conservative rate of 10% per year, its annual investment amount will reach approximately $531 billion by 2030. This means that the injection of private capital could narrow the technology sector's $1.6 trillion funding gap to about $1.1 trillion by 2030

Debt Financing: Controllable Leverage Expansion

The remaining gap of approximately $1.1 trillion will primarily be addressed through debt financing. JP Morgan believes that the technology sector is fully capable of bearing this scale of debt expansion without triggering systemic risks.

The report assumes that 40% (approximately $430 billion) of this new debt will come from bank loans, while the remaining 60% (approximately $640 billion) will come from bond issuance, based on the financing structure of non-financial corporations in the United States.

The impact of this move on the balance sheets of the technology sector is the focus of market attention. JP Morgan's analysis shows that even with such a scale of debt increase, by 2030, the net debt to operating cash flow ratio for the technology sector will rise from the current 0.7 times to 1.2 times. This level is not only controllable in itself but also appears extremely healthy compared to the current average ratio of 2.2 times for the MSCI Global Index. This indicates that technology companies have ample borrowing space to invest in the future of AI.

However, although the JP Morgan report suggests that Jensen Huang's predictions may be achievable from a financing perspective, other potential bottlenecks, such as power supply and transmission capacity, will be the next key challenges to examine in the future