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Schroders Equity Lens November 2025: your go-to guide to global equity markets
What does big tech’s capex splurge mean for valuations?
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The November 2025 edition of the Schroders Equity Lens is now available: Schroders Equity Lens
Summary:
- Capex is going through the roof at the hyperscalers. It’s on track to treble in the three years to 2026 (slide 6)
- Their premium valuations have partly reflected high returns on invested capital(ROIC)/low capital intensity
- A shift towards increased capital intensity presents a risk (slide 7):
- Companies in sectors with higher capital intensity/lower ROIC tend to trade on lower valuation multiples.
- Relationship is weaker within sectors than between them but still a risk for the mega caps: active stock analysis is essential (slide 8)
- Doesn't have to mean lower valuation
- if EBITDA rises by enough to offset any multiple compression
- if incremental return on capex > the cost of that capex, then it will be value-additive
- The US market highlights diverging risk appetite: tech companies with no revenues or profits are flying, as are the engines of US profit growth, the Mag-7. The rest are being left in the shade (slide 9).
- There are far more tech companies with no profits or revenues today than in the past: buyer beware (slide 10).
- Many markets have soared to new all-time highs. Rising valuations and a weaker dollar have boosted non-US markets in USD terms, even as earnings have favoured the US (slides 11 and 16-18).
- Rising markets are supported by improving fundamentals. Earnings revisions have picked up in most markets (slide 24).
- Although it seems counter-intuitive, stock market returns have been better if you invested at an all-time high compared to other times. Staying invested at such times has been more profitable than selling (slides 12-14 and read more).
- No market is cheap vs its own history. EM valuations have risen sharply (slide 26-27).
- The UK has become the share buyback capital of the world. Japan is also closing in on US-levels, a dramatic shift (slide 42).
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