The NASDAQ is spooked by the massive amounts of monies the four largest technology companies– GOOG, AMZN, META and MSFT –are planning to spend on AI infrastructure. According to Bloomberg, these four companies have projected 2026 AI capital expenditures at around $650 billion up from about $365 billion in 2025 and up from the initial year end forecast of $505 billion.
On the surface it appears these four companies have adopted “the winner takes all philosophy.” Writing the incredibly obvious and the only certainty in this environment, there will be winners and there will be losers. Who remembers Ask Jeeves, Northern Telecom, Lucent or AOL.
Speaking of which, including the last major boom/bust era of the Dot.com years. Bloomberg writes the search for such high-flying spending projections is tough to find. The Dot.com mania/bust of 26 years ago was not concentrated in four companies and the amount spent during that era does not compare to funds being spent today.
Is it the buildout of the railroad networks in the 19th century or the postwar federal investment in intestate highways or even New Deal-era relief programs?
Further placing the planned cap ex of these four largest companies in perspective, Bloomberg states the largest carmakers, construction equipment manufacturers, railroad, defense contractors, wireless carriers, parcel delivery outfits, along with Exxon, Intel, Wal-Mart, and the various spin offs of GE are projected to spend a combined $180 billion on Cap Ex in 2026.
Wow!
How will this planned capital expenditures be funded? Debt? Equity? Creative financing? Will this massive cap ex compete with the US government for funds? What about a return on investment? Will the product be available? What about depreciation schedules that affect EBITDA? What about energy sources and workers?
At this juncture, there are perhaps many more questions/concerns than answers.
Today there are many headlines of massive write-offs in the automotive industry because state sponsored EV mandates have been rolled back, partially because of lack of consumer demand. Most auto companies ramped up EV production with great fanfare only for today to be written off creating havoc in the respective share prices.
Several years ago, it was rhetorically asked “Will the EV mandate and hysteria be Edsel on steroids?”
Markets were robust Friday. Bitcoin surged about 13% but is down more than 15% for the week. For the exception of AMZN, mega tech and software companies had a good day as some believe the sell off was overdone. Treasuries were nominally higher in yield with little change to the yield curve.
What will happen this week. The Treasury has a $125 billion auction focused on the three-year, ten year and thirty year. How will the auctions be received?
Earnings season starts to wind down as profits have generally exceeded expectations thus suggesting this week’s economic reports may have a more of an impact.
The economic calendar is comprised of import/export prices, retail sales, NY Fed inflation expectations and the delayed January BLS employment report.
Last night the foreign markets were up. London was down 0.08%, Paris up 0.09% and Frankfurt up 0.46%. China was up 1.41%, Japan up 3.89% and Hang Seng up 1.76%.
Futures are bifurcated as the Dow is flat and the NASDAQ down 0.5%. The 10-year is off 5/32to yield 4.23%. Chinese regulators advised its banks to rein in their holdings of US government bonds due concerns over market volatility.
