Investor concerns deepen and sell off stocks as tech giants must justify big spending on AI
Following last week's plunge in chip stocks and a broader sell-off in technology stocks, companies spending big on artificial intelligence are under increasing pressure to justify their spending to traders eager to unload their stocks. The AI craze that drove stocks to record highs a month ago is clearly fading. The information technology sector was the worst performer in the S&P 500 last week, falling 1.6%; 100 index fell 4.1%. Chip stocks were the main drag, with the Philadelphia Stock Exchange Semiconductor Index falling 10% for its worst week since April 2025. Even Elon Musk's SpaceX is taking a hit, plunging 15% last week, after falling 10% the week before, falling below its initial public offering price and wiping out $1 trillion in market value from its peak. "Investors are starting to get nervous about the current level of capital spending and they're worried about a bubble," said Jake Seltz, portfolio manager at Allspring Global Investments. "Ultimately, we need to see revenue growth accelerate again." As investors cast doubt on hundreds of billions of dollars being poured into data center development, earnings reports from companies will be scrutinized over the next two weeks for evidence of whether the investments are yielding greater returns. and Alphabet will officially kick off earnings season for big tech companies on Wednesday. Company, Meta Platforms Inc. , The company will also release results next week. Together, these six stocks account for a quarter of the market-cap-weighted S&P 500 index. Nvidia will release earnings later next month. The index tracking the Big Seven has lagged the S&P 500 this year, a rarity for a group that has led the market higher for much of the past four years. Meanwhile, worries about spending have also weighed on semiconductor stocks, which have benefited most from the spending boom and have been a major contributor to the benchmark index's 8.9% gain so far this year. The focus this week will be largely on Alphabet. This one The parent company is widely seen as a winner in artificial intelligence, thanks to the popularity of its Gemini chatbot, in-house data center chips and the expansion of its cloud computing business. But growth in these areas also comes at a huge cost. Alphabet's capital spending is expected to more than double this year to $187 billion, and like many of its peers, it is increasingly turning to debt and equity markets for financing. "To the extent that profitability is in question so much, you can no longer put a high price-to-earnings ratio on these stocks," said Todd Ahlsten, chief investment officer at Parnassus Investments. "In the future, people will pay more attention to cloud computing's gross margin, pricing, and how much artificial intelligence revenue can be generated per dollar of computing resources invested." In fact, the valuations of tech giants have fallen across the board. The Bloomberg Technology Big Seven index trades at 24 times expected profits over the next 12 months, down from 33 times in October and 29 times at the beginning of the year. The Nasdaq 100 has a price-to-earnings ratio of 22 times. Original title Big Tech Needs to Ju