- Core businesses are slowing just as AI spending peaks. The advertising, consumer and retail operations that fund a collective $750 billion of Big Tech AI spending this year are showing signs of slowing, and in some cases are being cannibalized by AI products.
- Spending plans have not budged. Alphabet kept its capital spending outlook of as much as $205 billion even as search and other ad sales grew at the slowest pace in five quarters, and Amazon reiterated plans for roughly $220 billion of capex while its online stores grew just 2% and advertising 11%, the slowest since it began breaking the unit out in 2022.
- Investors are losing patience. Alphabet fell 13% on Thursday, wiping out a record $500 billion of market value, Meta has fallen 10% since its earnings last week, and Microsoft gave up an early surge on 48% Azure growth to close down 0.2%; only Apple, Microsoft and Nvidia are now up for the year among the Magnificent Seven.
- The selloff is going global. Nasdaq 100 futures were down 2% and S&P 500 futures 0.9% ahead of Friday’s open, Japan’s Nikkei 225 closed down 2.4%, and SoftBank, an OpenAI investor, fell 6%, taking its loss from its June peak to 48%.
What Happened?
Earnings from America’s largest tech companies this week revealed slowing growth in the businesses that pay for their AI build-out, Bloomberg reported. Alphabet said ad sales from search and other channels, roughly half its revenue, grew at the slowest pace in five quarters, and its chief business officer acknowledged lower monetization for queries in AI Mode. Amazon said both e-commerce and advertising slowed last quarter. Microsoft and Meta kept their spending guidance but posted results that underwhelmed investors. The FT reported that the Nasdaq Composite fell 1.4% on Thursday.
Why It Matters?
The two numbers we can pin down tell the story: Alphabet’s capex outlook of up to $205 billion and Amazon’s roughly $220 billion add up to about $425 billion, or around 57% of the $750 billion collective AI spending figure, from just two companies (our calculation). These companies are also issuing record debt, selling equity and signing long-term data center deals to fund the build-out, so slower core growth leaves less cushion if AI returns arrive late. Cloud remains the bright spot, with Google Cloud sales more than doubling and its operating income more than tripling, but investors are focused on cracks in search, the company’s main profit engine. Asian AI suppliers felt it too: the FT reported SK Hynix slid 7.9%, Samsung Electronics 3.7% and TSMC 1.9%.
What’s Next?
Bulls argue new ad formats often start with lower margins that improve over time, and Bloomberg Intelligence’s Mandeep Singh said cloud plus a frontier-level search business could restore Alphabet’s profitability. The bigger prize, according to Deepwater’s Gene Munster, is AI agents that buy on behalf of users and take a cut of transactions. Watch for any change to capex guidance in the coming quarters; for now the market is, in the words of Synovus Trust’s Dan Morgan, asking how all this pays off.
Affected Tickers and Coins: GOOGL, AMZN, META, MSFT, NVDA, QQQ
Source: Bloomberg, Financial Times
