Big Tech companies have seen over $1 trillion wiped from their market cap over the past week, as fears over AI spending sparked a sell-off.
Microsoft, Nvidia, Oracle, Meta, Amazon and Alphabet all saw their shares fall in the week up to market close on Thursday, as the companies’ earnings reports signaled huge continued capex spending from hyperscalers.
Amazon was down 7% in premarket trading on Friday. Alphabet was 0.7% lower, Meta was largely unchanged, while Oracle, Nvidia and Microsoft were up in the low single-digit percentages.
Plans to funnel $660 billion into AI this year were announced by Big Tech stocks, the Financial Times reported, a figure higher than the GDP of countries like the United Arab Emirates, Singapore and Israel.
Shares of companies developing hardware for the AI buildout will likely encounter continued volatility as “sentiment contagion takes hold,” Paul Markham, investment director at GAM Investments, told CNBC.
“Questions over the extent of capex as a result of LLM build-outs, the eventual return on that, and the fear of eventual over-expansion of capacity will be persistent,” he added.
‘Investors questioning every angle in AI race’
Amazon was among the firms announcing the biggest capex spending plans this earnings season.
“The key focus of [Amazon’s] results was the capex guide of $200bn, up +56% on the year, ahead of market expectations and the highest amongst the hyperscalers,” Mamta Valechha, consumer discretionary analyst at Quilter Cheviot, said Friday morning, adding that the spend was predominantly for its cloud unit, AWS.
Amazon shares over the past month
While management is confident of long-term returns on investment, the lack of visibility is not sitting well with investors, she added. “We have suddenly gone from the fear that you cannot be last, to investors questioning every single angle in this AI race.”
Apple, on the other hand, which has faced pressure from Wall Street over its AI strategy and has previously committed far less on capex than other Big Tech firms, has seen its stock jump 7% since Monday on the back of what CEO Tim Cook described as “staggering” demand for the iPhone.
— CNBC’s Elsa Ohlen also contributed to this report.