Big Tech's $600 Billion AI Spending Raises Investor Concerns
Big tech companies are planning a whopping $600 billion in artificial intelligence (AI) spending by 2026, which is causing significant concern among investors. The worries stem from the implications for profitability and the potential disruption to software firms. Major players like Amazon and Alphabet have seen their stock prices drop sharply, while companies such as Nvidia and Microsoft managed to rise due to high demand for their services.
Amazon's shares fell around 7% after announcing its capital expenditure of $200 billion. Similarly, Alphabet's stock was down 3% after the company indicated that its capital spending might double this year. This trend of increased spending has raised alarms about the sustainability of such investments, especially as the AI craze begins to face skepticism from the market.
The CEO of Nvidia, Jensen Huang, defended the uptick in investment, attributing it to "sky-high" demand for AI technology. However, this optimism is not shared across the board. Analysts suggest that the market has become cautious, interpreting news that would have once driven stock prices to new highs with skepticism. The S&P 500 software and services index has experienced an almost 8% decline this week alone, with around $1 trillion in market value evaporating since late January.
In India, the situation is particularly acute. Shares of software exporters have fallen by 2% recently, contributing to a staggering $22.5 billion loss in market value within a week. Investor nerves are heightened, fearing that AI-driven disruption could pose significant risks to the industry. This has led to a broader selloff in equities, as global markets are set to ease by 0.33% for the week.
As major tech firms signal even heavier spending on technology, they are facing increased scrutiny. Alphabet's recent announcement of enhanced spending plans led to a sharp decline in its shares. Despite strong underlying business performance driven by cloud growth, the market seems unable to overlook the ballooning capital investments. This situation reflects a growing tendency among investors to de-risk their portfolios amid concerns over narrow market leadership and the potential for over-valuation in the tech sector.
