Big Tech AI spending faces investor test after Alphabet selloff

Investors are turning against big tech AI spending just as the largest technology companies prepare to report earnings. Fortune reported that Alphabet’s sharp selloff after raising its 2026 capital spending plan has changed the market’s tone toward AI investment.

Alphabet shares fell more than 7% on Thursday, their worst session in more than a year, after the company said 2026 capital expenditures could reach $205 billion, according to Fortune. The company also reported that free cash flow was negative in the second quarter, the first such quarter since its 2004 initial public offering.

The reaction came despite strong growth in Google parent Alphabet’s cloud business. Fortune reported that cloud-computing revenue rose 82%, beating Wall Street expectations, but investors focused on the cost of building out AI infrastructure.

Why are investors worried about Big Tech AI spending?

Capital spending, or capex, is money a company uses to buy or build long-term assets such as data centers, chips and servers. In the AI boom, that spending is meant to create computing capacity, but investors are questioning how quickly it will produce profits and whether it will strain cash flow.

Jason Lemire, chief investment officer at Bold Wealth Partners, told Fortune that investors have become “obsessed” with capex and now prefer less of it rather than more. He cited capital raises, negative cash flow and rising debt as risks.

The shift sets up a difficult earnings stretch for other large technology companies. Fortune reported that Microsoft and Meta Platforms are due to report Wednesday, followed by Apple and Amazon.com on Thursday.

An index of the Magnificent Seven stocks — Alphabet, Microsoft, Meta, Apple, Amazon, Nvidia and Tesla — dropped 4.8% Thursday after Alphabet’s report, according to Fortune. The index is down 3.7% in 2026 after three years of gains.

Bloomberg-compiled analyst estimates cited by Fortune show Alphabet, Microsoft, Amazon and Meta are expected to spend about $724 billion on capital expenditures this year and nearly $950 billion in 2027. Microsoft is the second-worst performer in the Magnificent Seven this year, down 21%, while Meta has fallen 9.8% and Amazon is nearly flat for 2026, Fortune reported.

Willy Lee, principal at Neostellar Capital, told Fortune that investors are inclined to sell when capex rises and that Microsoft, Meta and Amazon are joining Alphabet in heavy spending. He said scrutiny will extend across their businesses as the spending continues.

The market pressure is also reaching chipmakers, the companies benefiting from AI infrastructure budgets. Fortune reported that the Philadelphia Stock Exchange Semiconductor Index rose 101% in the first half of the year, then lost 17% in July, putting it on track for its worst month since June 2022.

Apple has been the exception among the largest tech companies. Fortune reported that Apple has avoided large AI infrastructure outlays and has instead worked with model developers to support its services, helping its shares rise 15% in July and 23% in 2026.

Apple still faces costs tied to the AI boom. Fortune reported that demand for memory chips used in AI computing has pushed Apple to raise prices on products such as MacBooks and iPads, leaving questions about customer demand and margins.

Some large tech stocks now trade below their historical valuation averages, according to Fortune. Microsoft is priced at 19 times estimated earnings compared with a 10-year average of 27, while Meta trades around 14 times compared with an average of 20.

Brad Warden, senior portfolio manager at Nomura Asset Management, told Fortune that historical valuations matter less as AI spending changes business models and adds risk. He said the investment case depends on how much pain investors can tolerate during the spending cycle and how strongly they believe returns will follow.

This story draws on original reporting from Fortune.