Corporate profits and margins look stretched, but not yet low quality. Unlike the pre–global financial crisis period, today’s margin expansion is still broadly supported by pricing power and productivity growth. The bigger concern among investors is that we may now be much later in the capex cycle, where returns start to disappoint and excess capacity begins to build. In this Economics Weekly, Richard de Chazal examines the quality of today’s earnings, assesses where we are in the AI capex cycle, and identifies the signals that would suggest the recovery is becoming more fragile.
