AI Spending Concerns Rattle Tech Sector
Technology stocks experienced significant volatility as investors grappled with the financial implications of massive artificial intelligence investments. Amazon shares declined 5.6% on Friday following projections of $200 billion in capital spending for 2026, representing a substantial increase from the $131 billion anticipated for next year. Meanwhile, Nvidia shares surged 7.9% as the company reported exceptional demand for its AI processors.
Diverging Paths Among Tech Leaders
The technology sector is no longer moving in unison, with Barclays analysts noting correlation among major tech companies has reached its lowest point in at least a decade. While chip manufacturers like Nvidia, AMD, and Broadcom advanced on strong hardware demand, software companies faced substantial pressure. The S&P 500 software and services index dropped 4.6% on Thursday, erasing approximately $1 trillion in market value since late January.
Collective AI-related capital expenditure from Amazon, Microsoft, Alphabet, and Meta is now estimated to approach $600 billion for 2026. Alphabet alone is preparing for up to $185 billion in capital spending that year. This scale of investment has raised concerns among analysts, with MoffettNathanson noting the "magnitude of the spend is materially greater than consensus expected" and drawing comparisons to dot-com era spending patterns.
Market Impact and Investor Sentiment
The Dow Jones Industrial Average achieved a historic milestone by closing above 50,000 for the first time on Friday. However, the Nasdaq Composite has declined 0.9% year-to-date, reflecting the uneven performance within the technology sector. Microsoft shares fell 5% on Thursday as the Nasdaq dropped 1.59% to its lowest closing level since November.
Investor focus has shifted from capacity expansion to profitability timelines. "We're seeing this volatility about whether this investment will translate," observed Tom Hainlin, strategist at U.S. Bank Wealth Management. Michael Toomey, managing director for equities trading at Jefferies, noted he had "never seen sentiment this negative" toward software stocks.
Market participants are closely monitoring several upcoming events that could influence technology stocks, including U.S. January employment data on February 11 and January CPI inflation figures on February 13. The most anticipated event for AI investors will be Nvidia's earnings report scheduled for February 25, which is expected to provide crucial insights into how AI spending translates into actual orders.
