Equity Research

The major diversified miners are back in investment mode, with capex set to reach 10-year highs over the medium term, though still well below the capex peaks of 2012. As a result, FCF is being impacted as the miners reinvest. We have completed a deep dive into RIO & BHP's project pipelines, which we estimate at around US$50-60bn each (excluding maintenance capex), including an upside 'all growth' case scenario that incorporates future growth options not in our base case. Despite both mining companies spending around ~US$10-11bn p.a., we expect RIO to widen the production (Cu Eq) and FCF gap over BHP over the next 5yrs; alongside valuation, this is a key reason we prefer RIO.AX over BHP.AX (both Buy-rated).

Major global hyperscalers are materially increasing investment in 2025, with GS-expected growth in 2026 broadly in-line with GS-expected growth in cash flow (total company, not solely Cloud/AI business lines). While our analysts' forecasts imply a step-up in reinvestment rate in 2025 -- driven by a 27% yoy increase in total company capex + R&D vs. a 21% yoy increase in total company operating cash flow + R&D -- corporate returns (cash return on cash invested) are still ~30% on average in 2025-27. We continue to see these trends -- and the potential mix shift of AI capex mix to be more inference-heavy than training-heavy -- broadly supportive for an acceleration in data center power demand, with downward revisions to hyperscaler investment and broader economic growth key downside risks.