In its latest report, HSBC Global Investment Research said that innovation in large language models (LLMs) remains unabated. These LLMs have dramatically improved their intelligence over the past few months, with Agentic AI moving from an exciting opportunity to a reality.
“After almost three years of AI-driven euphoria following the GPT launch, the market now seems concerned about tech names in general, reflecting the rapid rise in capex budgets and recourse to debt and off-balance-sheet structures, while AI is only starting to prove its ability to be monetised. While tech stocks largely outperformed indices in 2024 and 2025, the absolute and relative performance is more muted year-to-date,” the report said.
HSBC analysed the cash flow health of the seven big tech companies and found that they are differently exposed to AI from a hardware or software standpoint. It expects these companies to generate $1.3 trillion in operating cash flow before taxes and interest this year, although their capital allocation may differ.
“We observe a sharp increase in capex as a percentage of total spending and a shrinking proportion allocated to shareholder returns,” it said. The firm expects big tech companies to spend 61% of their cash flow on capex this year, compared with 46% in 2025. It added that the proportion allocated for buybacks and dividends may fall to 16% and 5% in 2026 from 22% and 6% in 2025, respectively.
As a result, HSBC expects these big tech companies to post revenue of $2.8 trillion in 2026, compared with $2.3 trillion in 2025. Nvidia will be the fastest grower, according to the firm, contributing 33% of the group’s growth in absolute terms. “The other key contributors to Tech-7 revenue growth in 2026e are Alphabet, accounting for 16.5% of Tech-7 absolute revenue growth in 2026e, and Amazon (15.9%). Oracle’s growth acceleration in 2026–27 is linked to its OpenAI cloud revenue,” it added.
HSBC said Nvidia and Microsoft are well-positioned, combining the benefit of large exposure to infrastructure and compute while retaining a positive (and growing) cash balance in 2026. It maintained a ‘Buy’ rating on Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Oracle, with target prices implying upside potential of up to 130%. However, it maintained a ‘Hold’ rating on Apple, seeing only marginal gains.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)