Big AI reset ahead? Chris Wood doubts hyperscalers’ $990 bn capex estimates, highlights India’s reverse AI trade advantage

After top executives spooked investors with AI slowdown calls over safety concerns earlier this month, Jefferies’ Global Head of Equity Strategy Christopher Wood said the latest worries do not imply that AI is not here to stay, but it does mean that the AI story will be due for a big reset at some point in the not-so-distant future.

In his latest ‘Greed and fear’ report, Wood doubted whether the four tech hyperscalers, Meta Platforms, Alphabet (Google), Amazon and Microsoft, really can spend $990 billion on capex in 2027, which is the current consensus estimate.

AI worries not yet reflecting in job losses: Wood

Chris Wood highlighted that the AI worries of the nascent technology posing a threat to the Indian IT services sector are not yet showing up in job losses. The 10 biggest Indian IT services companies in the Q1 earnings season reported 6,200 job additions, Wood highlighted. “If this is not a big number, it is better than an outright decline. Meanwhile, employment at multinationals’ global capability centres (GCCs) still appears to be growing as reflected in rising demand for office space.”

He highlighted that Indian fund managers are treating the IT service stocks the same way foreign fund managers are treating India, namely as the reverse AI trade. “Thus, Infosys has de-rated significantly and currently trades at 13x one-year forward PE with a 5% dividend yield,” he added.

Earlier in August, Wood had noted that Microsoft, Amazon, Alphabet and Meta Platforms spent a combined $165 billion on capital expenditure in the second quarter, while generating just $7 billion in free cash flow. Consensus forecasts cited by Wood show the four hyperscalers’ aggregate free cash flow falling to negative $12 billion in the third quarter. That would mark a dramatic reversal from the $60 billion generated in the final three months of 2025.

Also read | Jefferies’ Chris Wood spots a hidden risk in Big Tech’s $165 billion AI capex race

“The free cash flow generation of the S&P500 in aggregate has begun to deteriorate,” the analyst had said, attributing the decline primarily to the “continuing capex binge by the four hyperscalers.”

In another report released earlier this month, Wood said that if the AI trade loses momentum, global investors may once again turn to India, whose structural growth story has remained intact even as technology giants dominate emerging market allocations. “It is reasonably clear that for India to become a prime point of focus again for emerging market equity investors, the AI story has to blow up,” he said.

OpenAI and Anthropic leaders recently called for a slowdown in AI development to manage risks and protect humanity, boosting sentiment for the tech stocks on Dalal Street. Anthropic CEO Dario Amodei, in a long X post, ‌called on AI companies to slow the rate at which they advance model capabilities amid mounting fears of misuse of artificial intelligence. The Anthropic CEO wrote that in nearly a year, AI agents "could be capable of taking over the entire internet, potentially causing hundreds of billions of dollars in damage." World’s richest man Elon Musk, who runs xAI and OpenAI CEO Sam Altman said they agree with Amodei.

Also read | AI’s 3 musketeers are hitting the brakes. Why Jefferies’ Chris Wood sees India midcap stocks regaining favour

(With inputs from agencies)

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