The market is winding down an exceptionally strong reporting season, and there's an underlying trend that remains front and center. "Big Tech intentions to spend on capex building new data centers remains as intense as ever," said Jed Ellerbroek, portfolio manager at Argent Capital Management. However, even for a multiyear bull market bolstered by the artificial intelligence boom, that won't automatically be taken as a positive. Nervousness from investors about return on investment from AI spending impacted the broader market after Alphabet last month hiked its 2026 capex outlook to as high as $205 billion. That came after the company said it was planning to "significantly increase" its capex yet again in 2027.
Alphabet's stock sank more than 7% immediately after last month's update, but it is still up roughly 10% this year. However, worries about returns on investment seemed to settle down after Microsoft and Amazon reported their quarterly results. Microsoft held its 2026 capex steady but called for growth in fiscal 2027 due to demand, while Amazon said its capex for the year could hit $220 billion as a result of increasing memory costs.
Those two stocks each jumped more than 15% on the back of their respective results. "Investors are just kind of like cycling through emotions about it on a seemingly continual basis," Ellerbroek said.
According to D.A. Davidson's Gil Luria, the market will give companies license to spend as long as their revenues are growing at a faster pace than capex while still increasing margins.
“We still need to see a handoff from those spenders to those companies that are going to incorporate AI into their business models,” said Ron Albahary.
