The growing adoption of power-thirsty artificial intelligence (AI) models, coupled with the transition to a lower-carbon economy, will drive higher capital spending by North American companies in the year ahead, says Fitch Ratings.
In a new report, the rating agency said it expects capital expenditure (capex) growth to accelerate in 2025, with the aggregate capex margin (expenses/revenues) for North American corporates to rise to 8% next year, up from 7.5% this year.
The latest forecast represents a significant increase, up 0.8 percentage points, from its expectations a year ago, Fitch said.
“Artificial intelligence and the secular energy transition will mean a high level of capital expenditures,” the report said. The U.S. election results are also expected to boost corporate spending in general, it said.
“While select sectors affected by climate policy may pull back, a friendlier corporate tax environment, deregulation, and continued strength in the U.S. economy are likely to accelerate overall corporate spending,” the report said.
The report noted that the utilities sector has both the largest and fastest-growing capex, “driven by the need to harden and upgrade the grid and transition to renewable generation.”
Electricity demand is now expected to grow by 2.0% to 2.5% annually until 2030, “driven by the rapid expansion of data centres,” it said, following relatively flat demand for the past 20 years.
The tech sector is investing heavily in AI infrastructure, the report said. While this is positive for hardware and semiconductor manufacturers, “sustained expenditures near current levels may lead to excess capacity in the medium term,” it noted.
For the energy sector, companies are generally remaining disciplined about their spending, “driven by a continued strong business model focus on returning capital to shareholders through buybacks and dividends, which implies low reinvestment rates,” the report said.
And, while there is some investment in low-carbon projects by energy-sector companies — in lithium, hydrogen, biofuels, and carbon capture and storage — these investments are “generally modest” relative to overall spending and are heavily reliant on tax credits, the report noted.
Despite the growth in capex, Fitch said North American companies are expected to generate the strongest aggregate free cash flows in 2025, supported by growing margins.
“Most sectors have sufficient operating cash flows to finance higher capex, but for utilities holding companies, widening negative [free cash flow] could pressure credit metrics in the coming years, unless funded in a credit-supportive manner,” it said.