Mega-cap tech firms keep spending loads of cash on AI — and investors are starting to rebel.
That was evident after Meta and Microsoft — two of the largest companies at the center of the AI revolution — saw their stock prices drop on Wednesday, after earnings.
The catalyst for the losses was newly announced plans from both companies to spend even more on AI in the next year, despite colossal amounts that have already been poured into the AI race.
Meta said it could spend $70 billion to $72 billion on AI capex in 2025, up from its previous guidance of $66 billion to $72 billion. CFO Susan Li said the company would spend even more on AI in 2026, driven largely by infrastructure costs.
Shares of the Facebook parent dropped as much as 14% on Thursday.
Microsoft had a similar moment when it reported earnings on Wednesday. The software giant said it spent a record $34.9 billion on capex in the past quarter, up from the $24.2 billion the prior quarter, and said spending could increase in 2026.
Shares of Microsoft dropped 3% at intraday lows on Thursday.
Confidence in the AI trade has grown increasingly fragile. Talk about a stock market bubble is growing as investors assess massive gains in the market in recent years. They’re also aware that monetization plans for AI remain unclear, despite buckets of cash that have already been poured into chips and data centers.
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Amazon, Meta, Microsoft, and Google could spend as much as $320 billion on capex primarily related to AI infrastructure this year, according to an analysis of financial statements by Business Insider.
Some investing pros are worried that the ambitious AI spending plans are a parallel to previous market fads that have fizzled out. Meta, for instance, poured billions of investment into the metaverse several years ago, a concept that markets eventually moved on from and led the company to report billions in losses.
Peter Berezin, the chief market strategist at BCA Research, called the latest stock drops in Meta and Microsoft a “yellow flag” for the AI trade. In a recent note to clients, he said a possible warning for the AI trade could be when a large mega-cap tech company announces plans to spend more on capex, though its stock price drops as a result.
He told BI he expected to see that play out among more tech firms in the future, which would constitute a clearer warning that the AI hype is starting to deflate.
“When Zuck comes out and says, we’re making all these investments based on the best-case scenario for AI because we don’t want to be left behind — that’s dangerous, right? Because if you don’t get that best-case scenario, you are going to have pretty significant write-offs,” Berezin said.
