Big Tech Shares Fall on AI Investment News
Amazon Unveils 200 Billion Dollar AI Investment Plan
Amazon Shares Drop 10%... "Skepticism Over AI Investment"
Similar Pattern Seen at MS and Alphabet
"AI Bubble" Narrative Drives Broader Market Sell-Off
Big Tech companies such as Amazon and Microsoft (MS) have unveiled record-breaking investment plans for artificial intelligence (AI), but the market reaction has been lukewarm. As skepticism spreads that monetization is lagging behind the astronomical level of spending, some analysts are even suggesting that the AI bubble, which has so far supported the stock market, may start to deflate.
On February 5 (local time), Amazon announced that its fourth-quarter revenue last year came in at 213.39 billion dollars (about 310 trillion won), up about 14% from a year earlier. Along with the improved earnings, the company also laid out an aggressive investment plan, projecting AI-related capital expenditures (CAPEX) of 200 billion dollars (about 294 trillion won). Andy Jassy, Amazon's Chief Executive Officer (CEO), said the investment reflects "strong demand for our existing services and major opportunities in AI, semiconductors, robotics, and low Earth orbit satellites," stressing that "we expect a high long-term return on invested capital."
Although his remarks added fuel to the recent AI investment boom, Amazon's share price plunged 10% in after-hours trading in New York. Gil Luria, an analyst at D.A. Davidson, said, "Investors are concerned that, as with MS, investment is growing faster than profits," adding, "Amazon, Google, and MS are trapped in an accelerating race to build infrastructure, and there is concern that this investment may not lead to good outcomes for all of them."
MS and Alphabet, Google's parent company, also saw their share prices sink after they reported higher-than-expected expenses. MS shares fell as much as 11% during trading on January 29 after its earnings release, dropping to 429.24 dollars. In terms of a single-day move, this was the largest since March 2020. Alphabet, which reported its results the previous day, beat market expectations on revenue and initially lifted investor sentiment. However, when the company said it would increase CAPEX to as much as 185 billion dollars this year, its share price fell by around 2% in after-hours trading.
The selling pressure driven by the "AI bubble" narrative is now spreading across the broader stock market. Following a 1.59% plunge in the tech-heavy Nasdaq Composite Index, the Dow Jones Industrial Average fell 1.2%, and the S&P 500 Index dropped 1.23%. By sector, only utilities (0.11%) and consumer staples (0.25%) barely held their ground.
Some observers argue that the AI theme is not over, but that the market has entered a phase of separating winners from losers. Despite Alphabet's announcement of large-scale investments that day, Broadcom's share price instead climbed 0.8%. Stephen Turckewitz, Director of Investments at Modern Wealth Management, said, "We view the announcement by some companies of additional capital spending plans of astronomical scale as a positive signal for the overall health of the market," adding, "This is because it suggests that the market is making cautious judgments rather than succumbing to irrational overheating."
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