Big Tech’s AI Bet Is Starting to Scare Wall Street
Big Tech’s AI Bet Is Starting to Scare Wall Street
The mood shifted sharply as the largest technology companies reported earnings and laid out ever-bigger plans for AI data centers, chips and computing capacity. Big Tech shares shed nearly $900 billion in the rout, a stark reversal from the earlier view that lavish AI investment was automatically a sign of strength.
Amazon, Alphabet, Meta and Microsoft said they expected to invest more than $720 billion this year, according to DealBook, as investors began punishing even highly profitable companies for outlays with no immediate return. Alphabet suffered its worst-ever one-day plunge, erasing almost $500 billion in market value, while Amazon’s weak earnings outlook and accelerating capital spending sent its shares lower. “This is not what bulls were hoping for,” Jefferies analyst Brent Hill said.
The sell-off deepened Friday. The Nasdaq fell 2.9% and the S&P 500 dropped 1.8%, with Nasdaq 100 companies losing more than $1 trillion in market value. The concern was not simply the size of the investment bill — estimated at as much as $828 billion this year across Amazon, Alphabet, Microsoft, Meta and SpaceX — but its effect on free cash flow. Four of the five reported negative free cash flow in the latest quarter.
That has sharpened the divide. Cloud demand remains robust: Google Cloud revenue more than doubled, Azure grew 48%, and AWS rose about 39%. But investors are asking whether demand for computing power validates today’s enormous buildout, especially as companies turn to debt and share sales to finance it.
Executives insist the spending is a competitive necessity. Amazon CEO Andy Jassy acknowledged that spreading the cost over decades would be easier, but said: “That’s not the world that we live in, and that’s not the opportunity.”
Skeptics see a wider danger. Alphabet’s AI push is pressuring the search business that funds it, while Amazon and Meta are also burning cash despite healthy cloud and advertising growth. Microsoft remains the exception on free cash flow, though it too has turned to the bond market. Economist Aleksandar Tomic warned that if the bets fail, “If these tech companies sneeze, the rest of the market would catch pneumonia.” The AI race is still running; Wall Street is simply demanding proof that it can pay for itself.
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