An index of these stocks is down 11% from a May record – erasing US$2 trillion in market value
[CHICAGO] Wall Street is growing increasingly concerned about the hundreds of billions of US dollars Big Tech is spending on artificial intelligence just as the resurgence of the war in Iran clouds the global macroeconomic outlook.
The Magnificent 7 technology behemoths on Thursday (Jul 23) suffered their biggest one-day drop since the tariff tantrum in April 2025, with an index of the group falling 4.8 per cent and wiping out US$797 billion in market value.
The sell-off pushed the S&P 500 Index down 1.2 per cent, while the tech-heavy Nasdaq 100 Index sank 1.9 per cent.
The culprit was earnings from Alphabet and Tesla after the bell on Wednesday, which spooked traders and cast doubt on the durability of the AI trade that has powered the stock market for more than three years.
Alphabet raised its capital spending forecast to as much as US$205 billion in 2026. Meanwhile, Tesla chief executive officer Elon Musk told investors that 2026 will be “a massive capex year” after the electric vehicle maker reported profits that were far below analysts’ expectations.
“The real problem is the amount of spend that’s going on,” said Ken Mahoney, CEO of Mahoney Asset Management. “No one knows what the return on investment is.”
The macro backdrop, including oil prices rising as the war with Iran escalates, is increasing the pressure on these stocks, he added.
“It’s the perfect storm,” Mahoney said.
Chip stocks also took a hit, with the Philadelphia Stock Exchange Semiconductor Index dropping 0.5 per cent.
The group is the biggest beneficiary of AI spending, and the index is up more than 70 per cent in 2026.
But trading has gotten increasingly volatile, with just five sessions in the last two months having less than 1 per cent swings.
The sell-off is coming as investors grow increasingly cautious about the massive sums that Big Tech firms are spending to build out their AI infrastructure.
The Magnificent 7 index is now down 11 per cent from a record reached in late May, erasing US$2 trillion in market value.
Wednesday’s earnings reports fed into those concerns.
While Google-parent Alphabet posted encouraging results featuring robust growth in its cloud computing business, its spending forecast was more than expected, even though Alphabet had telegraphed the increase when it raised capital in early June. The US$45 billion it spent in the second quarter turned its cash flow negative for the first time as a public company.
“That suggests there’s a lot more risk in the stock now than there was before, when it was a cash-generation machine,” said Jason Lemire, chief investment officer at Bold Wealth Partners.
Meanwhile, Musk said that Tesla “should be spending on capex as fast as we can – spend as fast as we can without it being too wasteful”.
Tesla shares plunged 15 per cent on Thursday, their worst day since March 2025, and Alphabet sank 7.1 per cent for its biggest drop since May 2025.
Other major AI spenders also fell, with Microsoft sliding 2.2 per cent, Amazon.com sinking 4.6 per cent and Meta Platforms declining 3.4 per cent. All three report earnings next week.
While every member of the Magnificent 7 was in the red, Apple had the shallowest decline. The iPhone maker has largely sat out the AI spending spree, something that investors have been rewarding lately. Its shares have gained 11 per cent in July and 18 per cent in 2026.
As for the rest of the group, the risks that are driving the selling are real and something investors need to watch closely.
For years, Wall Street applauded big AI spending plans, sending the stocks soaring after each new announcement. That sentiment has turned, and now the stocks are getting punished if those expenditures are not showing concrete payoffs in a much bigger way. “These companies used to have the healthiest balance sheets in the history of corporate America, now they’re asset heavy and there’s a question about the ROI,” Lemire said, referring to the companies’ return on investment.
“That’s a big change in how investors need to view them, and that’s before you get to the lack of transparency in terms of their exact debt obligations over the coming years.” BLOOMBERG
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