HSBC: CSP capital spending is far from peak; leverage supports AI trend until 2028

According to Chaoxiang Research, a HSBC report dated August 12 indicated that since July 1, the Philadelphia Semiconductor Index has declined 16%, while the S&P 500 has risen 3%, suggesting that market concerns over peak capital expenditures by CSPs are overblown. Consensus forecasts predict that the growth rate of capital expenditures among the five major CSPs (Alphabet, Amazon, Microsoft, Meta, Oracle) will decline from 95% in 2026 to 46% in 2027 and 11% in 2028, with free cash flow shifting from $34 billion to -$104 billion. However, HSBC’s scenario analysis shows that if capital expenditures in 2027 reach $1.0 to $1.6 trillion, the net debt-to-equity ratio would rise only from the current 7% to between 8% and 30%; even if expenditures reach $1.9 to $2.5 trillion in 2028, the net debt-to-equity ratio would remain between 25% and 43%. Under HSBC’s aggressive scenario, the overall ROIC for CSPs is projected at 19% in 2027 and 17% in 2028, which HSBC considers still acceptable. The report concludes that the capacity expansion guidance from TSMC, Intel, and ASML for the June quarter is supported by underlying demand. HSBC’s top recommendations are Marvell, Intel, TSMC, and ASML, with target prices of $300, $200, NT$3,400, and €2,149 respectively—all rated Buy. All five major CSPs are also maintained at Buy ratings, with target prices of $420 for Alphabet, $310 for Amazon, and M