Bill Ackman Says Ai Hyperscalers' Revenue Will Blow Past Expectations Even As Capex Jitters Rise

• Famed investor Bill Ackman thinks hyperscalers' growth potential is being underestimated.
• Ackman says revenue growth will beat estimates, or capex will come down, boosting free cash flow.
• He added that jitters about neoclouds and other AI firms' funding don't apply to hyperscalers.

Bill Ackman is bullish on the biggest AI spenders, even as investors balk at the staggering sums being poured into the infrastructure buildout.

The billionaire founder of Pershing Square Capital Management shared his latest quarterly letter on November 2, updating investors on the firm's outlook as the year winds down. While he acknowledged that the so-called picks-and-shovel trade has outperformed AI hyperscalers this year, he said that the market is underestimating the biggest capex spenders.

"In our view, analyst estimates penalize the hyperscalers for the cost of the buildout today while ascribing limited potential to the significant future growth in revenue and earnings that are likely to result from these investments," Ackman wrote.

This comes as Q3 earnings season continues to yield mixed results. Big Tech firms have mostly reported strong earnings, but they're under much greater scrutiny from investors eager to see a return on heavy AI spedning. The sell-off since the early October peak dragged the Nasdaq 100 toward correction territory and has shaved about $2 trillion from the index.

But Ackman says that future revenue growth will exceed expectations. His firm hold stakes in some of the biggest spenders, including Microsoft, Meta, and Amazon.

"We believe it is highly probable that the hyperscalers' revenue growth will exceed analyst estimates over the next several years," Ackman said. "To the extent that does not occur, we believe the hyperscalers will reduce their capital expenditures from current levels. In either scenario, we believe the hyperscalers' capital intensity will be lower and their free cash flow will be meaningfully higher over the next several years than what is implied by current consensus estimates."

Ackman estimated that hyperscalers could see pre-tax return on invested capital of 15% to 25%. For that reason, Ackman said the biggest hyperscalers are uniquely positioned to both fund the AI infrastructure buildout and, ultimately, reap the benefits.

"We regard these assumptions as conservative and believe the ultimate returns could be substantially higher given the hyperscalers' ability to monetize capacity through higher-value inference services and first-party applications rather than just wholesale compute rental," Ackman said.

He also added that the market shouldn't conflate issues of funding and concerns about debt that have faced neocloud companies — cloud computing providers that serve AI customers — with hyperscalers' spending.

"The hyperscalers are in a vastly stronger financial position. They have virtually no net debt and can finance the substantial majority of their capital expenditures from the prodigious cash flows of their core businesses."