Bloomberg estimates four companies (AMZN, META, GOOG, MSFT) will spend $505 billion on AI capital expenditures for 2026, up from an estimated $366 billion in 2025.
Wall Street is growing increasingly concerned about the ability to generate profits from all this AI cap ex, expenses that are started to viewed as a large potential risk.
The S & P 500 and NASDAQ declined yesterday as the mega caps showed no signs of easing up in their AI spending, a decline led by 12% drop in MSFT—its worst selloff since the onset of the pandemic—on concern it could take a while for its investments to pay off.
META’s outlook eased worries about spending plans, sending shares relatively higher even as it stated it would double its spending to as much as $135 billion for the year.
Bloomberg writes however that the broader S & P 500 fared better than the mega caps as over 350 companies advance during the day.
Treasuries ended relatively unchanged after a volatile day.
After the close AAPL posted result that were better than anticipated but stated rising component costs are threatening to squeeze margins. Shares are essentially unchanged.
Last night the foreign markets were mixed. London was up 0.51%, Paris up 0.81% and Frankfurt up 1.06% . China was down 0.96%, Japan down 0.10% and Hang Seng down 2.08%.
Dow and NASDAQ futures are down 0.25% and 0.5% respectively following the nomination of Kevin Warsh as the next FOMC chairman, a pick that may not be as supportive of deep interest rate cuts. The dollar advanced but gold and silver declined about 5%. The yield curve steepened. The 10-year is off 2/32 to yield 4.24%.
Kent Engelke
Chief Economic Strategist Managing Director
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