Big Tech earnings have sharpened investor doubts over whether heavy AI spending will pay off fast enough, and the tech-focused Nasdaq 100 is on track to lose upwards of $2 trillion in value this month.
That is a bit more than SpaceX is worth in total. The index is down more than 5.8% in October as the AI rally hit a rough patch, with Meta, Alphabet, and Amazon each lifting their spending outlooks again as they compete to build out AI infrastructure.
Investors have been rattled by the prospect of AI spending climbing ever higher, especially as rising interest rates make borrowing to fund it costlier and harder to justify.
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Below is a rundown of how the megacaps have reported so far. Apple is due to post results next week, and Nvidia, the bellwether for the AI trade, follows in mid-November.
Tech Rout
Alphabet’s stock had its worst single-day percentage fall on record on Thursday, hit by weak results in its core search advertising business and a steep rise in the rate at which it’s burning cash.
Meanwhile, Meta’s plan to raise a record $97.5 billion has fueled fears of shareholder dilution and raised the question of whether surging AI costs will push other Big Tech companies to turn to capital markets more often.
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Microsoft and SpaceX bucked the downbeat mood, posting results that suggested their AI investments are beginning to bear fruit.
John Bilton, global head of strategic research for multi-asset solutions at JPMorgan Asset Management, said growth expectations may have been too optimistic, but that overall, it isn’t turning negative.
Mounting Debt
Microsoft is said to be preparing a roughly $25 billion bond offering, its first US investment-grade sale in over nine years. Meanwhile, Meta, Amazon, and Alphabet have collectively borrowed hundreds of billions through bond issuance over the last four years, which has made investors nervous about how dependent the sector is becoming on debt markets to fund itself.
Morgan Stanley projects that total spending on AI infrastructure will top $1 trillion next year.
Credit Default Protection Gets Pricier
The AI sector’s increasing dependence on borrowed money is becoming a fresh source of risk for investors, undermining the idea that the firms driving the boom are shielded from broader economic pressures.
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The unease is moving beyond equities into credit markets, where investors are beginning to factor in the chance that higher financing costs, paired with slower payoffs from AI investment, could put pressure on companies once seen as relatively safe.
Strong Sales
The “Magnificent Seven” have kept posting solid revenue growth since ChatGPT debuted in 2022, pointing to relentless demand and possibly explaining why investors first welcomed the heavy spending, even with no clear timeline for when it will pay off.
Amazon Web Services, the company’s profitable cloud unit, kept picking up speed, while Meta delivered stronger-than-expected revenue growth along with a positive outlook. Microsoft, too, projected robust cloud growth in its most recent earnings report.
Surging Capital Spending
Big Tech has long invested heavily in infrastructure to grow businesses like cloud computing, online advertising, and e-commerce, but the AI boom has sent capital expenditure to staggering heights.
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J.P. Morgan forecasts that worldwide AI capex will hit $5.5 trillion by 2030, with $900 billion going out the door in 2026 alone.
The bank’s analysts also noted that this year’s AI capex from Amazon, Alphabet, Meta, Oracle, and Microsoft is likely to match everything those companies have spent combined since ChatGPT launched in November 2022.
