Record-breaking AI investment plans by U.S. technology giants are reigniting fears of a market bubble. Despite strong quarterly earnings reports from most companies, investors are growing uneasy about the staggering scale of capital expenditures, concerned that these investments may be outpacing the profit potential of new technologies, leading to a broad sell-off in tech stocks.
Following their quarterly earnings releases over the past week, Amazon.com, Alphabet, and Microsoft saw a combined market capitalization loss of $900 billion. These three companies, along with Meta Platforms, Inc., plan to invest $660 billion in data centers and specialized chips by 2026—an amount exceeding Israel's GDP. This represents a 60% surge from the $410 billion planned for 2025 and is 165% higher than the $245 billion spent in 2024.
Investors were startled by the massive capital expenditure plans, even as the companies reported robust revenue growth in their cloud businesses. Jim Tierney, Head of Concentrated U.S. Growth at AllianceBernstein, remarked, "The scale of the capital expenditure is astonishing."
The sell-off indicates that market patience for the return on investment cycle for AI is wearing thin. Apple was the sole exception; the company, which has chosen not to engage in the AI capital expenditure arms race, saw its stock price rise 7.5% after reporting record quarterly sales.
The $660 billion spending plan triggered a chain reaction of declines. The capital expenditure plans of the tech giants far exceeded market expectations. Amazon.com announced after Thursday's market close that its capital expenditure for this year would reach $200 billion—$50 billion higher than anticipated, surpassing the already eye-catching figures from Alphabet and Microsoft, causing its stock to drop 11%.
CEO Andy Jassy argued that the massive investment is necessary to prepare for growth in AI, chips, robotics, and satellites. He pointed to a 24% revenue growth in Amazon Web Services (AWS) as evidence that the investments are beginning to pay off.
Microsoft faced the most severe impact, with its stock falling 18% since its earnings report last Wednesday. Although its cloud business revenue grew 26% to $51.5 billion, this growth slightly missed expectations, and a 66% quarterly surge in data center spending raised market concerns.
Microsoft also disclosed for the first time its reliance on OpenAI—45% of its future cloud contract bookings, valued at $625 billion, originate from the startup. Analysts expressed caution over this heavy dependence on a single client.
Even Alphabet's record profits failed to ease market worries. The parent company of Google surpassed $400 billion in annual revenue for the first time, with 2025 profits reaching $132 billion. However, its plan to double capital expenditure to $185 billion still weighed on the stock price.
Rising capital expenditures signal that realizing the full promise of AI requires more time and funding. This is testing investor confidence in long-term returns.
"Higher capital expenditure sends a signal that realizing the AI strategy may take longer," said Dec Mullarkey, Managing Director at SLC Management, which oversees $300 billion in assets. "For investors already focused on when they will see AI-related revenue, this is not good news."
Anna Nunoo, Senior Analyst at AllianceBernstein, noted that the quarterly earnings brought a "shock of increased capital expenditure," adding, "Microsoft and Amazon.com have the burden of proving that all this spending can deliver attractive returns." Brent Thill, an analyst at Jefferies, stated:
"Concerns about an AI bubble are resurfacing. Investors have pressed pause on tech stocks; what companies say fundamentally doesn't matter anymore."
The shift in market sentiment is evident. The tech-heavy Nasdaq index fell 4% over the past five days. Software stocks were also hit, amid concerns that new AI coding tools from Anthropic and OpenAI could disrupt their businesses.
News that a potential $100 billion investment and infrastructure deal between OpenAI and NVIDIA fell through added to market volatility. Oracle, which relies heavily on OpenAI's future cloud business, fell 18% over five days, despite raising $25 billion in debt and asserting it has "high confidence in OpenAI's ability to raise funds and fulfill commitments."
Apple emerged as the clear winner in this earnings season. The company reported record quarterly revenue of $144 billion, driven by surging sales of the iPhone 17 in the U.S. and China.
More notably, Apple's capital expenditure fell 17% to $2.4 billion in the last quarter, with a yearly total of approximately $12 billion—a stark contrast to the hundreds of billions spent by its peers.
In January, Apple reached an agreement with Alphabet to use Gemini to enhance its AI capabilities, including the Siri voice assistant. Dan Hutcheson, Vice Chairman of TechInsights, commented, "Apple's minimal capital expenditure is the AI dividend from partnering with Alphabet for computing and cutting-edge models. This transforms Apple's AI capital expenditure into a pay-as-you-go model," as the iPhone maker outsources most underlying infrastructure costs to Alphabet.
Hutcheson added that this partnership "absolutely" explains part of the increase in Alphabet's 2026 capital expenditure plan.
Market expectations have shifted dramatically. NVIDIA, the world's most valuable publicly traded company by market cap, will report earnings later this month, facing a turbulent market. After being asked to accept rising capital expenditures for over three years, investors are looking for signs that spending based on faith in AI is nearing an end.
Drew Dickson, Founder of Albert Bridge Capital, summarized: "These are crazy times. We have moved from an environment where capital expenditure alone was enough to spark euphoria, to one where the market expects it to translate into revenue growth within an unrealistic timeframe."
Meta Platforms, Inc. also announced last week it would double its capital expenditure to $135 billion, but its stock initially rose 10% after demonstrating how AI improves ad targeting efficiency. However, these gains were subsequently erased in the broader market sell-off.
Combined annual revenue growth of 14% to $1.6 trillion for the four companies was still insufficient to overcome market pessimism. After more than three years of optimism about AI's prospects, investor confidence is being tested like never before.
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