Cloud Sector Shows Resilience Amid Spending Concerns
Cloud computing exchange-traded funds closed higher on Friday, with the First Trust Cloud Computing ETF advancing 4.4% and the WisdomTree Cloud Computing Fund rising 3.5%. This positive performance occurred despite significant pressure on Amazon shares, which declined 5.6% following the company's substantial capital expenditure forecast.
Amazon's Spending Plan Rattles Investors
Amazon's announcement that it expects 2026 capital expenditures to reach $200 billion—a substantial increase from the $131 billion planned for 2025—triggered investor concerns about returns on massive infrastructure investments. The company's stock dropped 11.5% in after-hours trading Thursday following the disclosure. While Amazon Web Services reported 24% growth on a $142 billion annualized run rate, competitors showed stronger expansion, with Google Cloud at 48% and Microsoft Azure at 39%.
Other major technology stocks showed mixed performance, with Microsoft gaining 1.8% while Alphabet declined 2.5%. Cloudflare and Datadog also finished the session higher.
AI's Dual Impact on Software Valuations
Investors are grappling with artificial intelligence's contradictory effects on software companies. While AI infrastructure promises increased demand for computing resources, it also threatens to disrupt traditional subscription models by potentially making certain products less essential. The S&P 500 software and services index has lost approximately $1 trillion in value since late January, reflecting growing skepticism about pricing power in the sector.
"The market dislikes the substantial capital expenditures required for these growth rates," noted Dave Wagner of Aptus Capital Advisors, highlighting investor preference for immediate cash flow and margin evidence over future promises.
Key Events Ahead for Cloud Sector
Several important developments could influence market sentiment in the coming week:
- Cloudflare reports fourth-quarter 2025 earnings after market close on Tuesday, February 10
- Datadog announces results earlier the same day and hosts an investor day on February 12
- The U.S. January employment report arrives Wednesday, February 11
- January Consumer Price Index data follows on Friday, February 13
These events come as technology stocks have declined 9% since late October, with software and services companies falling 15% in just over a week. Investors have been rotating into non-technology names amid concerns about elevated valuations and uncertain returns on massive AI investments.
