Wall Street reassessed its positioning in artificial intelligence investments this week, with major tech companies that have been spending heavily on AI infrastructure experiencing significant declines while their suppliers rallied sharply.
Alphabet led the declines despite strong operational performance, with revenue growth of 24% and cloud business expansion of 82%. However, the company’s capital expenditures doubled to nearly $45 billion, pushing free cash flow below zero for the first time as a public company. Management also raised spending guidance without providing specific targets for the following year, prompting investors to sell the stock down 8% and erase roughly $330 billion in market value. Tesla moved in the opposite direction but received the same market punishment, as the company missed earnings expectations despite revenue gains, with operating margins compressing to 1.4% from 4.1% a year earlier. The stock fell 18%, costing shareholders about $250 billion.
The beneficiaries of this repricing were the companies selling equipment and infrastructure to the AI spenders. Supermicro Computer, a server manufacturer, jumped 25% after revealing more than $60 billion in new orders within a single quarter. Digital Realty, a data center operator, gained nearly 15% on the strength of a record leasing backlog and raised its own capital plans without market penalty, a contrast explained by the fact that its expansion was already contracted.
The broader index showed minimal movement, with roughly $880 billion departing the Magnificent Seven stocks while the rest of the S&P 500 gained approximately $165 billion. The PHLX Semiconductor Index recovered to closely watched resistance levels, though chip stocks remain nearly 20% below their June highs despite the week’s rebound.
Upcoming earnings reports from Microsoft, Meta, Amazon, and Apple will test whether this repricing extends further. Three of these firms carry similar capital-spending justifications that proved costly for Alphabet, and all arrive at depressed valuations relative to recent highs. Apple stands apart, having avoided major AI infrastructure investments while recently reaching record prices.
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