An investment boom is building up globally, marked by surging capital expenditures from businesses across major economies. This boom is concentrated in sectors like tech, retail, shipping that aim to expand capacity and capture post-pandemic growth opportunities. It is driven by economic reopening, new remote work and e-commerce demands emerged during the pandemic. Analysts hold an upbeat outlook for continued rise in corporate investment, predicting a ‘red-hot capex cycle’. However, some worry this boom may be temporary and face risks of recurring supply shortages.
Tech firms lead the investment boom with expansions in remote work infrastructure
The investment recovery is currently concentrated in the tech sector. Firms like Apple, TSMC, Samsung plan to boost capital spending by over 30% in 2021, building manufacturing plants and upgrading software to power the rise of remote work and online shopping. New innovations like work-from-home technologies also see more patent applications. Besides meeting pandemic-induced demands, the competitive nature and high growth potential of the sector contribute to the tech investment boom.
Retailers racing to expand e-commerce capacity amid rebounding consumer demand
Retailers focusing on discretionary spending also increased capital expenditures substantially amid economic reopening. Firms like Target and Walmart are trying to compete with e-commerce giants and ramping up online platforms. Even established brands like M&S are building overseas websites to capture growth opportunities. Moreover, supply shortages of consumer goods force retailers to invest in production expansion and overseas shipping to meet the rebound in post-pandemic demand.
Corporate earnings calls show record executive optimism on continued capital spending
According to Bank of America’s analysis of S&P 500 companies’ earnings calls since 2006, executives are most optimistic about capital expenditures now. For the top 25 non-financial S&P 500 firms, analysts’ capex expectations for 2021 are 10% higher than last year. Firms plan to maintain high investment in coming years to fund long-term growth strategies. However, around half of S&P 500 companies are not boosting spending, showing bifurcation in corporate confidence.
Supply bottlenecks in metals, land and financing threaten the sustainability of the boom
The investment boom faces uncertainties from supply shortages. Prices of key minerals used in renewable energy and electric vehicles surged over 139% in the past year. Moreover, renewables projects take over 10 years on average to get regulatory approval in the U.S. The long waits and opaque returns disincentivize capacity expansions from mining and materials firms. Tight project financing also pushes up valuations of clean energy firms. Without easing these supply-side constraints, the boom risks becoming temporary amid recurring bottlenecks.
A surging wave of corporate capital expenditures is taking shape, concentrating in sectors like tech and retail to capture post-pandemic growth. Upbeat executive optimism, economic reopening and new technology demands drive this boom. However, planning delays, opaque returns and shortages in key metals and financing threaten its sustainability unless governments introduce reforms.