AI Spending Fears Threaten to Swamp Big Tech’s Strong Earnings

Three of the biggest and most important technology companies in the world are expected to show healthy growth when they report earnings this week.

Normally that would be considered a catalyst to stabilize the wobbly stock market. But for Wall Street, that all depends on two data points: How much money they’re spending on artificial intelligence and when it will start to pay off in a meaningful way. And based on the violent market reaction to Meta Platforms Inc.’s rising capital expenditures last week, the response to any disappointment likely won’t be forgiving.

Investors have “absolutely no patience right now for higher capex,” said John Belton, a portfolio manager at Gabelli Funds. “The stock market can whistle past the graveyard for some time, but eventually it’s going to have an impact or at least create a more fragile market.”

Investor anxiety is already riding high heading into the week as oil prices soar, with Brent crude trading at its highest level since April. Traders have also piled back into the relative safety of US Treasuries, pushing the 10-year yield back below 5% for the first time in a month. Combined with the ongoing war in Iran and the pivotal US midterm elections next week, it’s a challenging macro set up.

In the face of that, tech giants valued at more than $10 trillion are scheduled to report earnings, including major AI spenders like Alphabet Inc., Microsoft Corp. and Amazon.com Inc. All three are expected to post double-digit percentage gains in revenue for the quarter. But investors will be most interested in their comments on how much they plan to spend on AI and the degree to which those investments are proving to be profitable.

“This is a pretty pivotal earnings season,” said Kevin Shea, senior equity analyst at BNY Wealth. “The market is discounting megacap growth because the market is becoming less certain that this growth is sustainable.”

This skittishness was apparent in the trading of Meta shares after the company reported earnings on Wednesday afternoon. The stock surged in late trading as the results showed encouraging trends. But by the time the market opened on Thursday morning sentiment had reversed as the company’s plans to raise its future spending commitments by $125 billion to of $825 billion started to sink in. The stock closed Thursday down 6.1%, its worst day since July, and the price of Meta’s five-year credit default swaps jumped to a fresh high as the heavy spending meant it would need to sell more debt.

Investor sentiment on AI spending has shifted swiftly in recent weeks, stoked by a confluence of fears across the tech sphere. First, comments from cloud-computing provider CoreWeave Inc. underscored concerns about the degree to which the buildout of AI infrastructure is being financed by debt, especially as an ongoing rise in interest rates amplifies the risk of things going south. Market research firm Gartner estimated that more than $3.5 trillion of AI infrastructure spending could be at risk of impairment by 2030 if AI revenue fails to justify the spending.

“We are in an extreme flight to safety right now,” said Jed Ellerbroek, portfolio manager at Argent Capital Management. “Investors are fleeing data center capex stocks, the technology and data center stuff.”

Then, Anthropic PBC, the major AI lab that is expected to go public next month, told prospective investors that its third-quarter revenue rose about 45% from a year ago, a slower pace than in the second quarter, clouding the overall narrative.

“It’s a tough combination of tough macro, slowing AI revenue and inflecting AI capex,” Gabelli’s Belton said.

Megacap tech stocks have been the primary force driving the market higher for years, but that’s changed in 2026. The Bloomberg Magnificent Seven Index is up just 6.5% this year, well below the 11% rise in the S&P 500 Index and the 15% rise in the tech-heavy Nasdaq 100 Index. Among the seven members of the group, only Apple Inc. and Nvidia Corp. are beating the market. And a version of the S&P 500 that excludes the tech giants has gained 12% in 2026.

Investors seem to be of two minds about AI spending. There’s widespread optimism that AI will be a powerful market driver over time. But at the same time there’s an ongoing debate about if and when the hundreds of billions of dollars being spent will show up on the bottom line. This is particularly sensitive since the spending cycle has transformed many of the big AI spenders from cash-generation machines to companies with negative free cash flow.

“If we get another scenario where we have to lower FCF expectations, that will elevate concerns about the durability of AI spending and the reliance on incremental capital, and that will flow down to the neoclouds and other parts of the market as well,” said BNY’s Shea. “However, if we can get positive revisions to FCF, the market will breathe a sigh of relief that we’ve reached the bottom for negative revisions and that we’re through the most difficult part of the spending cycle.”

Of course, some Wall Street pros still see megacap tech as one of the surer bets in the market, especially since their declines this year have resulted in lower valuations. The Magnificent Seven index is trading below 24 times estimated earnings, less than its 10-year average of roughly 29 and down from 33 a year ago. Microsoft and Alphabet are both trading at discounts to their long-term averages, while Amazon’s multiple is under 20, near its lowest since 2008.

Those cheaper multiples come with a pretty robust growth outlook. The Magnificent Seven’s earnings are expected to climb about 34% this year, above the 29% pace of the S&P 500, according to Bloomberg Intelligence data. Furthermore, Wall Street is becoming increasingly optimistic about the group’s longer-term prospects. Profits projected to rise 27% in 2027, a consensus that has moved up aggressively in recent weeks. Two months ago, analysts were anticipating an increase of less than 19%.

“The bar is being set even higher, and so when these companies do meet expectations, it’s almost like the market is disappointed,” Tiffany McGhee, chief executive officer of Pivotal Advisors, told Bloomberg TV. “They want it knocked out of the park.”

And then there’s the expectation that hyperscalers will forge ahead with heavy AI spending plans regardless of whether they show much in terms of payoff for investors — a scenario that’s keeping Wall Street up at night.

“The four horsemen of the neocloud build out seem unrepentant at this point,” said Kim Forrest, chief investment officer at Bokeh Capital Partners. “They’re going to go on with their spending plans, which may be making investors nervous.”

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