An envisaged artificial intelligence spending spurt totalling half a trillion dollars by the major technological firms in 2026 is creating additional investor anxiety as they evaluate the possible impact on profitability and even an existential danger to software companies.
Amazon, which had reported a capital expenditure outlay of $200 billion, fell 7% on 6th February, and Alphabet dropped 3% after the company announced on Wednesday that the outlay on capital expenditure could increase in the current year. Meta Platforms was down 1.3%.
But other heavyweight technology stocks, such as Nvidia, increased by 7 per cent, Microsoft increased by 1 per cent, and Tesla increased by 4 per cent. The index S&P 500 improved by 1.6 per cent and the Nasdaq advanced by 2 per cent, but both indices will end the week in the negative.
“The market perspective is that the AI build-out business, and how they have drawn in all this income over so many years, we believe that has become too costly,” said Andrew Wells, chief investment officer at SanJac Alpha in Houston. “It is not that the trade is dead, but it became too expensive to extract forward all these prospective future revenues and not to factor in the risk of all that. So it’s a de-risking trade.”
According to Nvidia CEO Jensen Huang, “the increase in spending was due to sky-high demand. In an interview on CNBC, he described the increase as proper and sustainable.”
Concurrently, the shares of data analytics companies remained under selling pressure regarding the concerns that they are posed with an existential threat by potent new AI models.
Thomson Reuters, a company based in Canada and whose value has fallen in a single day with the largest decline in its history, fell by 0.7. The stock of London-based RELX dropped by 4.6 per cent and registered a 17 per cent decline in its worst week since 2020.
The S and P 500 software and services index has dropped nearly 8 per cent this week, and about 1 trillion of the market value has disappeared since January 28.
“Investors now view with more caution than they would have expected, given the optimism about AI, headlines that would have propelled shares to new highs, just as it happened when the event was at its zenith,” according to Carlota Estragues Lopez, equity strategist at St. James Place in London.
Not only are the investors who are concerned about the returns-on-investment, but also the vulnerability to market leadership that can barely expand beyond a group of mega-cap companies.
JOLT TO DATA ANALYTICS FIRMS
The new plug-in of Claude by Anthropic created a sell-off in software, data and analytics companies. London Stock Exchange Group shares gained some of their lost territory on Friday, but remained nearly 8 per cent lower than at the start of the week in a second week of dramatic declines.
Reduction of AI-exposed shares this week has burdened the wider equity markets. International stocks are set to decline 0.33 per cent per week.
This rout has been especially acute in India, as the shares of software exporters fell by another 2% on Friday, as they concluded a week in which the market values lost by the companies were 22.5 billion dollars.
The investor nerves around the possibility of AI-based disruption are coinciding with an escalating trend of punishing big tech companies that indicate they will increase their spending on the technology.
Google parent Alphabet also increased its expenditure plans on Thursday, which at one point reduced its shares by up to 8 per cent, though it finished the day level.
“Both Alphabet and Amazon posted good underlying business performance, with cloud growth exceeding expectations. That has not been sufficient to pull markets out of their inflating capital investment strategies,” said Aaran Chiekrie, Hargreaves Lansdown equity analyst.
