After a decline in CapEx prior to and in 2016, short-term and near-term market expectations have shifted up; business investment is ramping up and kicking in in several key industries.
Bloomberg Markets reports that among the 130 S&P 500 companies that have reported results for the first quarter of 2018, capital spending increased by 39 percent—the fastest growth in seven years. The spending is going into new structures and industrial equipment, and technology like information processing equipment, and other intellectual property.
After solid growth in 2017, investment in equipment and software was projected to remain strong in 2018 by 2018 Equipment Leasing & Finance U.S. Economic Outlook, released by the Equipment Leasing & Finance Foundation. The quarterly report by the foundation, which is focused on the $1 trillion equipment leasing and finance sector, highlighted that momentum will continue to be positive for the equipment finance industry for companies who build new plants, re-tool factories, and produce new equipment or robotics.
The rise in investment can be in part attributed to the recent federal tax overhaul, which has lowered the corporate tax rate, offering a chance for companies to repatriate overseas cash, while allowing 100% depreciation of capital expenditures upfront.
Let’s take a look at several industries in which investment has gone up.
Capital Investment for Machine Tools
According to the U.S. Manufacturing Technology Orders report, U.S. manufacturers in July 2018 registered new orders for machine tools and related products worth $399.34 million, representing a 19.7% increase over July 2017 orders, and the total brings year-to-date new orders to $2.95 billion.
The Association for Manufacturing Technology, AMT, president Doug Woods, said, “The current growth rate in manufacturing technology orders is outstanding in the face of market uncertainty due to trade tensions. This unusual strength during the summer months reflects the market’s confidence in the continued growth in manufacturing, the need for additional capacity, and the challenges in putting that into place in a timely manner due to strain on key component supply chains.”
Capital investment for Technology
Companies like Netflix, Facebook, and Amazon, are looking to spend more in global CapEx than previous years as a result of increases in customer base, and spending on infrastructure. Ovum’s Communications Provider Revenues & Capex Forecast 2017-22 Report shows that communications provider spending around the world will climb by more than 6% annually by 2022.
Internet Content Providers (ICP) CapEx is predicted to increase by more than 100% over the next 5 years, from $81 billion in 2017 to $172 billion in 2022.
According to Upin Dattani, principal financial analyst at Ovum “We effectively had a year when the revenue growth for ICPs was 15% last year in 2017 — 14.7%, according to our projections and estimates,” he said. “We’ve got that at 13% for 2018.”
Facebook expects to spend about $15 billion on CapEx this year — the high end of the company’s prior estimates — on data centers, servers, network infrastructure and office space.
Google spent $7.7 billion on capital investments in the first quarter of 2018, up from $2.4 billion year-over-year. Much of that investment is going to Google data centers and property acquisition.
Capital investment in the Semiconductor Industry
Buyers saw chip supply increase 8-10% in 2018, as suppliers boosted capital expenditures by 14% to a record $100 billion, according to IC Insights. As a result, semiconductor CapEx rose from $90 billion in 2017 to $102.6 billion in 2018.
Samsung spent $6.72 billion in capex for its semiconductor division in the first quarter of this year, slightly higher than the average of the previous three quarters. This figure is almost four times the amount the company spent in the first quarter of 2016. Over the past four quarters, Samsung has spent $26.6 billion in capital outlays for its semiconductor group.
Factors like growing corporate profits, business confidence, and tax cuts point to signs that this year and beyond new and enduring CapEx investments are supported. Conditions will continue to be ripe. It’s time to start focusing on CapEx investments if your corporate spending is increasing.