Capex is the number, Big Tech is the name

Happy Sunday all,

It's Saskia here, with this week's edition of Tech and the City. Big tech earnings dominated the week, and the focus was symptomatically on the spending plans attached to the headline numbers. Meta and Tesla reported at the same time and managed, by taking entirely opposite approaches to capital expenditure, to disappoint investors equally. Meta raised its spending forecast to $135bn and disclosed $825bn in future commitments - too aggressive, said the market, sending shares down seven per cent. Tesla cut its capex forecast - not aggressive enough, came the reply, shares fell three per cent.

But Elon Musk made sure the week's real conversation was about something else entirely, floating the idea of a Tesla-SpaceX merger on an earnings call and then declining to discuss it further (SpaceX fell nine per cent this week having initially popped on the news which came alongside a stellar set of earnings).

Barclays, meanwhile, announced 5,000 job cuts, with its chief executive describing AI as “the icing on the cake, not the cake” which attempts to be reassuring but most likely is not if your job falls under “icing”.

With the Budget landing next Wednesday, the tech sector has been making its case to the chancellor. AlbionVC published an open letter this week calling for practical reforms across the life of a British company, all the way from a small-deal exemption on National Security and Investment Act filings for early-stage rounds, to sovereign compute credits for startups and restoring VCT tax relief to 30 per cent. The letter's core argument is hardly a new one: Britain is unusually good at starting tech companies and unusually bad at keeping them.

A BGF survey of 172 founders this week found 82 per cent remained confident about growth prospects and more than half planned to expand next year, but 80 per cent said changes to capital gains t would directly influence their investment decisions. So the message to John Healey could not be much clearer.

The Budget lands Wednesday and will define the tech sector's mood heading into the final quarter. Alphabet, Amazon and Microsoft all report next week - the hyperscaler trio whose capex guidance will either calm or deepen the anxiety that Meta and Tesla stirred this week. After the damned-if-you-do, damned-if-you-don't capex episode, investors will be parsing every line for signs of discipline without retreat.

Here are the big stories shaping the week in tech.

Saskia

CHART OF THE WEEK

Speaking of Big Tech splashing out… Driven by fears of missing out on the next model or compute wave, combined capital expenditures from Alphabet, Amazon, Meta, and Microsoft have completely decoupled from historical norms, quadrupling from modest $20bn quarterly numbers back in 2020 to a dizzying peak approaching $150bn per quarter. And Meta’s earnings report this week - complete with a raised spending floor and a rare dip into negative free cash flow - proves the playbook hasn't changed.

Artificial intelligence will change the jobs available in Britain’s banking sector, but could also create new opportunities for workers with the right skills, a senior Microsoft executive has told City AM.

Bill Borden, Microsoft’s global head of financial services, said that AI would replace much of the routine work traditionally carried out by junior bankers, changing the skills needed to enter the industry.

“Clearly there’s going to be an impact on human capital, for sure”, he said at Microsoft’s London conference on Wednesday.

A new £70m fund backed by the Mayor of London and the British Business Bank has launched to help growing businesses struggling to secure finance from traditional lenders.

The Future London Growth Fund, managed by investment firm FSE Group, will offer loans of between £1m and £3m to companies across London’s 32 boroughs and the City.

The fund, launched on Thursday, aims to bridge the gap between conventional bank lending and larger venture debt deals, targeting businesses with strong growth prospects that may not yet be profitable.

What’s your advice for UK founders?

Get close to the people you’re building for. In the UK, you’ve got customers and some brilliant engineering talent on your doorstep. That’s a pretty good starting point. Being able to meet regularly, share what you’re building and hear what customers think is a real advantage.

Model ML is the third software company my brother Arnie and I have founded. Across all three, most of our engineers have been UK based. There’s this idea that you need to go to Silicon Valley to build a great technical team. That hasn’t been our experience.

Most undervalued UK tech sector at the moment?

AI for regulated industries. London has a concentration of financial, legal, insurance and accounting expertise that’s very hard to replicate.

These are difficult sectors to build for. You need to understand how the work actually gets done, how decisions are made and what people need to check before they can trust an output. That understanding is a huge part of building a useful product. It’s why we’re focused on financial services at Model ML. There’s so much depth to the work. I think the opportunity for founders who really understand one of these industries is enormous.

Do you think we’re in an AI bubble?

No. If anything, I think AI is currently undervalued. We’re trying to put a number on the market for something that affects almost everything people use their intelligence to do. I don’t think we’ve really got our heads around how big that is.

Think about the market oil created by powering cars and planes. Now think about the technology that’s going to help people think, work and make decisions. That’s the scale of the opportunity.

At Model ML, we’re seeing customers do work in minutes that used to take hours. Focusing on financial services alone, we’ve built a business that reached a valuation of over a billion in under 18 months. And we’re still early in what we want to build. When you see that first-hand, then think about the opportunity across other industries, it’s hard to conclude that AI is overvalued.

What’s your go-to breakfast spot in the City?

If I’m grabbing something on the way to the office, Frothee in King’s Cross does a great croissant. I’d love to give you a more extensive London breakfast guide, but most mornings I’m eating on the go.

What AI tool do you think everyone should use?

For people in financial services, I’d obviously say Model ML. We’re building it specifically for the work they do, with their data, their processes and the context they need. It’s already becoming something they rely on throughout their working day, and we’re seeing it become the platform that increasingly underpins how they work, make decisions and move faster.

Otherwise, I’d say Wispr Flow. I can speak my thoughts instead of typing them, which gets ideas out of my head much faster. It’s a simple thing, but it makes a real difference to my day.  

British energy unicorn Fuse is moving into AI infrastructure, betting that its control over electricity supply will allow it to build data centres faster than rivals struggling with lengthy grid delays.

The London-based company, founded by former Revolut executives Alan Chang and Charles Orr, has launched Fuse Compute, offering businesses access to Nvidia chips hosted in UK data centres powered by Fuse.

Its first 128 Nvidia B300 GPUs are expected to come online in December, rising to 1,024 by the second quarter of 2027. The company then plans to add 22 megawatts (MW) of data centre power capacity in late 2027, with a further 116MW planned from 2028.

British AI infrastructure firm, Nscale, is in talks to secure a second $45bn (£33.5bn) computing deal with Anthropic, just a day after Microsoft pulled out of its flagship UK data centre project.

The Nvidia-backed company is negotiating an agreement to supply the US AI giant with computing power from a second facility at its Monarch campus in West Virginia. The proposed deal would cover 460 megawatts of capacity powered by Nvidia’s next-generation Vera Rubin chips, potentially doubling Anthropic’s Nscale commitments to almost $90bn.

The agreement could be signed within days, though discussions remain ongoing and terms could change, as reported by Bloomberg.

Musk spent Tuesday saying a Tesla-SpaceX merger was “a good idea”, spent Wednesday refusing to discuss it further, and watched both stocks fall in the process. Analysts at William Blair told me the merger was about control rather than strategic necessity, noting the two companies already operated “almost as if they are one entity”.

SpaceX's market cap sits at roughly $2 trillion, Tesla's at $1.5 trillion. A combined entity would hand Musk, who controls SpaceX with 10 to one supervoting shares but owns only 19.8 per cent of Tesla, considerably more consolidated power. So in short: maximum disruption, minimum commitment, zero new information…

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