Big Tech companies have seen over $1 trillion wiped from their market capitalization in just one week as fears surrounding AI spending grow.
According to FactSet data, this significant decline comes as investors start to question the sustainability and returns of the massive investments being made in artificial intelligence.
Amazon has been particularly affected, with its shares falling 9% this week and a further 7% drop observed in premarket trading on Friday.
The company also announced a capital expenditure (capex) plan of $200 billion, marking a 56% increase compared to last year. This amount is the highest among hyperscalers, according to Mamta Valechha, a consumer discretionary analyst at Quilter Cheviot, who noted that a significant portion of this spending is aimed at its cloud unit, Amazon Web Services (AWS).
In total, Big Tech companies plan to invest $660 billion in AI this year, a figure that surpasses the GDP of countries such as the United Arab Emirates, Singapore, and Israel, as reported by the Financial Times.
This rapid increase in capital expenditures has led to growing concerns among investors regarding the potential for over-expansion in capacity and the actual returns on these investments.
Microsoft, Nvidia, Oracle, Meta, Amazon, and Alphabet all experienced declines in their stock prices leading up to market close on Thursday.
Paul Markham, investment director at GAM Investments, commented that the sentiment surrounding AI spending is causing volatility in the market. Investors are now questioning every aspect of the AI race, which has led to a more cautious approach in their investment strategies.
Despite the market turmoil, some companies are still finding success. For example, Apple, which has been under pressure regarding its AI strategy, has seen its stock rise by 7% since Monday.
This increase follows CEO Tim Cook's announcement of “staggering” demand for the iPhone. As the AI landscape continues to evolve, investors will likely remain vigilant and critical of the capital expenditures being announced by Big Tech companies.