The worst day in 15 months: The market value of the "Big Seven" in the US stock market evaporated by approximately US$800 billion in a single day
[The worst day in 15 months: The market value of the "Big Seven" in the U.S. stock market lost approximately US$800 billion in a single day] Just as the resumption of the war in Iran has cast a shadow on the global macroeconomic outlook, Wall Street is also increasingly worried about the hundreds of billions of dollars invested by technology giants in the field of artificial intelligence. On Thursday, the "Big Seven" U.S. stocks suffered their largest single-day decline since Trump's Liberation Day tariff crisis in April 2025. An index tracking the performance of the Big Seven fell by 4.8%, and the market value of the seven companies evaporated by a total of US$797 billion. This wave of selling ultimately caused the S&P 500 Index to fall 1.2% on Thursday, and the Nasdaq 100 Index, which has a high proportion of technology stocks, fell 1.9%.
Just as the renewed war in Iran is clouding the global macroeconomic outlook, Wall Street is increasingly concerned about the hundreds of billions of dollars invested by technology giants in the field of artificial intelligence. On Thursday, the "Big Seven" U.S. stocks suffered their largest single-day decline since Trump's Liberation Day tariff crisis in April 2025. An index tracking the performance of the Big Seven fell by 4.8%, and the market value of the seven companies evaporated by a total of US$797 billion. This wave of selling ultimately caused the S&P 500 Index to fall 1.2% on Thursday, and the Nasdaq 100 Index, which has a high proportion of technology stocks, fell 1.9%. Specifically, Alphabet, Google's parent company, plunged about 7% on Thursday, causing its single-day market value loss to exceed $293 billion, the most in the company's history. Tesla's stock price plummeted 15%, its worst performance ever the day after earnings. The sell-off spread to other technology stocks: Meta fell 3.4%, Microsoft fell 2.3% and Amazon fell 4.6%. Currently, the Big Seven index has fallen 11% from the historical high reached at the end of May, and its market value has evaporated by approximately US$2 trillion. The main culprit that triggered the market crash on Thursday was the financial reports of Alphabet and Tesla released after the market closed on Wednesday. These two performance reports sent traders into panic and cast deep doubts on the sustainability of the "AI dividend" that has driven the U.S. stock bull market for three years. Alphabet raised its capital spending forecast for this year to $205 billion, exceeding industry estimates. At the same time, after Tesla reported profits that were well below analysts' expectations, the company's CEO Musk admitted to investors that 2026 will be a "huge year for capital expenditures." Wall Street also had to face a new reality: these large technology giants may no longer be the inexhaustible "money printing machines" of the past. "The real issue is with the scale of spending right now, no one knows what the return on investment is going to be," said Ken Mahoney, chief executive of Mahoney Asset Management. The macro backdrop - including higher oil prices as the conflict with Iran escalates - is also adding to the pressure on the stocks, he added. "It's just a perfect storm," Will "negative free cash flow" cover more giant companies? While Alphabet and Tesla both reported surges in revenue on Wednesday, investors focused on the companies' AI spending. The hot word in the market on Thursday was undoubtedly "negative free cash flow" - both companies' free cash flow turned negative. Alphabet reported negative free cash flow of $5.9 billion — the first time the company has been negative since it went public in 2004. Its chief financial officer said that as the company deepens its investment in AI, free cash flow will continue to be under pressure. Meta is also expected to report negative free cash flow when it reports second-quarter results next week, according to analysts polled by FactSet. Analysts expect the same to happen to Amazon, which also reports earnings next week and whose free cash flow fell into negative territory in the first quarter. The world's largest technology companies, once known for generating abundant cash and strong balance sheets, are now undoubtedly in the throes of intense transformation. They are all betting their futures to some extent on growing AI applications, investing in data centers that can provide the computing power needed to process AI queries. These companies are also accumulating unprecedented amounts of debt to fund their AI infrastructure plans. While technology giants were plunging on Thursday, the 100-year bond issued by Alphabet earlier this year also fell below 90% of its face value for the first time - its risk premium relative to the risk-free benchmark interest rate once hit a high of 139.8 basis points. At the same time, lower-cost open source AI systems are posing a threat to the business models of top AI laboratories, and it is precisely the huge demand for computing power and chips in these laboratories that supports ultra-large investment expenditures.
According to FactSet data, among the data center giants often referred to as "hyper-scale cloud service providers," Microsoft is the only company that expects to double its capital expenditures this fiscal year and still generate positive cash flow, with free cash flow expected to exceed $16 billion in the quarter ending in June. Investors worry business models are being disrupted Mike O'Rourke, chief market strategist at JonesTrading, said, "Investors are feeling deep concerns because these companies appear to be destroying the most successful, expansionary and investor-friendly business model in the history of the U.S. stock market. This should be alarming." The so-called free cash flow essentially refers to the net cash remaining after deducting all operating expenses and major investment projects. It differs from net profit, which spreads the cost of major investments over future years through depreciation and amortization. Some analysts point out that free cash flow, although volatile, can more clearly reflect how much "real money" a company has available to satisfy investors' demands, such as paying dividends and repurchasing shares. In the past, this indicator has been the core barrier to refute the industry's doubts that "AI spending is too high." Whenever skeptics compare the current tech boom to the dot-com bubble of the early 2000s, bulls invariably argue that these spending sprees are being paid for by established giants with fortress-like balance sheets and vast amounts of cash. Now, however, those cash reserves are shrinking at an accelerating rate, and the market's patience with Silicon Valley's huge spending sprees is about to be severely tested. David Wagner, head of equities and fund manager at Aptus Capital Advisors, believes this situation will not change in the short term. “Everyone is anticipating a slowdown in spending growth and trying to find the first company to ‘give in’ on capital expenditure expectations, and that’s probably just the beginning.”
According to FactSet data, among the data center giants often referred to as "hyper-scale cloud service providers," Microsoft is the only company that expects to double its capital expenditures this fiscal year and still generate positive cash flow, with free cash flow expected to exceed $16 billion in the quarter ending in June. Investors worry business models are being disrupted Mike O'Rourke, chief market strategist at JonesTrading, said, "Investors are feeling deep concerns because these companies appear to be destroying the most successful, expansionary and investor-friendly business model in the history of the U.S. stock market. This should be alarming." The so-called free cash flow essentially refers to the net cash remaining after deducting all operating expenses and major investment projects. It differs from net profit, which spreads the cost of major investments over future years through depreciation and amortization. Some analysts point out that free cash flow, although volatile, can more clearly reflect how much "real money" a company has available to satisfy investors' demands, such as paying dividends and repurchasing shares. In the past, this indicator has been the core barrier to refute the industry's doubts that "AI spending is too high." Whenever skeptics compare the current tech boom to the dot-com bubble of the early 2000s, bulls invariably argue that these spending sprees are being paid for by established giants with fortress-like balance sheets and vast amounts of cash. Now, however, those cash reserves are shrinking at an accelerating rate, and the market's patience with Silicon Valley's huge spending sprees is about to be severely tested. David Wagner, head of equities and fund manager at Aptus Capital Advisors, believes this situation will not change in the short term. “Everyone is anticipating a slowdown in spending growth and trying to find the first company to ‘give in’ on capital expenditure expectations, and that’s probably just the beginning.”