Big Tech’s AI Spend Fuels Bubble Concerns

Tech stocks led US markets lower on concerns that their massive investments into artificial intelligence (AI) may not be rewarded any time soon. The blue-chip S&P 500 and technology focused Nasdaq indices fell 0.2% and 1.5% respectively.

Shares in Google’s parent, Alphabet, fell despite the company reporting a $132 billion profit for 2025. Instead, investors focused on its plans to spend $175 to $185 billion on capital expenditures this year, more than it has invested in the past three years combined.

Since the start of last year, Alphabet has moved from laggard to a leader among the “Magnificent Seven” tech companies and it has incorporated its latest Gemini 3, its latest AI model, in all its products, including its Chrome browser. Active users of its Gemini app exceeded 750 million in the fourth quarter, up from 650 million in the prior quarter.

However, it is not resting on its laurels, and to keep up with rivals such as Amazon and Microsoft in the AI race, and its 2026 capex spend will go toward investing in AI compute capacity for Google DeepMind, data centres and increasing server capacity in its cloud business.

Shares in Amazon fell almost 10% in overnight trading on Friday after it announced plans to invest $200 billion to scale up its AI infrastructure this year, more than 50% higher than it spent in 2025. Chief executive Andy Jassy, who succeeded founder Jeff Bezos in 2021, revealed that the company will increase spending on its custom AI chips, robotics and low Earth orbit satellites. Amazon is also reported to be in talks to invest up to $50 billion in OpenAI.

Although shareholders are becoming skittish over the huge capex plans, bond markets have welcomed tech companies with open arms. Oracle’s latest $25 billion bond offering attracted a record order book of more than $129 billion, eclipsing the $125 billion of orders Meta Platforms received for its $30 billion of AI related bonds sold in October.

Alphabet also plans to sell a 100-year bond denominated in sterling this week, the first century bond issued by a technology since Motorola in 1997. Such long-dated corporate bond issues are extremely rare due to the potential for acquisitions, outdated business models and technological obsolescence.

While the US struggled last week, international markets fared much better. Japan’s Nikkei rose 4% on Monday to a new record high after Prime Minister Sanae Takaichi won a landslide victory in a snap general election over the weekend to give her Liberal Democratic Party a supermajority in parliament’s lower house. Takaichi, Japan’s first female prime minister, has promised a new age of prosperity and expansive fiscal stimulus.

In economic news, the European Central Bank and Bank of England both left interest rates unchanged last week. However, the 5-4 vote on the BoE’s Monetary Policy Committee was closer than expected and suggests that a rate cut at their next meeting in March is likely. The BoE cuts its growth forecasts for the next years and predicted that a weakening employment market will curb wage and price pressures. The dovish stance put more pressure on the pound amid the Peter Mandelson scandal which has put the prime minister’s position in jeopardy.

It was another rollercoaster ride for precious metals following the unprecedented sell-off at the end of January following President Trump’s decision to nominate Kevin Warsh as the next chair of the Federal Reserve. Gold fell to $4,400 an ounce last Monday but rallied back above $5,000 and silver plunged nearly 50% from its all-time high of $121 in the space of a week before also recovering.

Elsewhere in commodities markets, Brent Crude rallied to $69 a barrel, supported by the ongoing tensions between the US and Iran. The US Maritime Administration issued updated guidance to US-flagged vessels transiting through the Strait of Hormuz, recommending that they stay as far as possible from Iranian territorial waters. Around one-fifth of the world’s oil consumption passes through the narrow chokepoint between Iran and Oman.

Looking ahead, this week’s economic calendar is headlined by the US nonfarm payrolls and inflation reports for January. A weak reading for either will heap more pressure on the Federal Reserve to cut interest rates.

(Cover Image Source: Growtika)