AI-induced volatility continues to roil the market
Big Tech firms like Microsoft (MSFT), Amazon (AMZN), and Alphabet (GOOGL) have delivered stellar results yet they have been rewarded with selloffs.
All three stocks are down since reporting earnings a few weeks ago. And the reason is the ongoing software rout.
Advancements in the AI industry, like those delivered by AI startup Anthropic, have reignited fears of software getting automated away.
And now, a research paper presenting a hypothetical scenario brought about by further AI disruption has worsened investor anxiety, leading shares of software firms and even payment processors and delivery companies to tumble.
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Microsoft’s (MSFT) most recent quarter looked like a victory lap as it posted its first-ever $50 billion quarter in cloud services revenue.
Yet despite this stellar result, Wall Street hit the “sell” button.
Microsoft’s stock dropped so violently, it lost $357 billion in market value in a single trading session. It was Microsoft’s steepest one-day wipeout since 2020. And it’s still down 20% year to date.
Other tech giants have followed suit.
Alphabet’s (GOOGL) cloud-tech revenue grew 48% in the latest quarter. And Amazon’s (AMZN) cloud business rose 24%, which beat analyst estimates.
All three stocks are down since reporting earnings a few weeks ago. And it’s because software is in a rout.
This round of selloffs came about when AI startup Anthropic’s Claude coding tool reignited fears that “software will get automated away.”
Unfortunately, AI-induced investor anxiety continues to roil Big Tech and other segments of the market.
Another round of selloffs erupted, and this time, it wasn’t just software firms that were victims—shares of delivery and payments companies nosedived too.
This was brought about by a research paper published by Citrini Research, a research firm specializing in macro and thematic stock analysis.
According to the hypothetical scenario written up in the research paper, AI could potentially push the U.S. unemployment rate above 10% by 2028, negatively impacting software firms, payment processors, and even delivery app companies like DoorDash.
The research piece says AI could disrupt the “one long daisy chain of correlated bets on white-collar productivity growth” that these firms are composed of.
Shares of DoorDash (DASH), American Express (AXP), Uber (UBER), Mastercard (MA), Visa (V), and others fell by 4% or more.
On top of this, IBM’s stock tumbled by 13% following Anthropic’s release of an AI tool that can modernize and streamline COBOL—a decades-old programming language that’s run on IBM computers.
Adding more fuel to the fire is investor skepticism surrounding Big Tech’s capital expenditures.
Alphabet is carving out up to $185 billion in capital expenditures (“capex”) this year. That’s more than it has spent in the past three years combined. And most of that capex is aimed at building the data centers that power AI projects.
The five biggest U.S. tech companies are forecast to hit about $650 billion in capex in 2026, based on company guidance and consensus estimates.
That’s nearly triple the $224 billion total in 2024. And it’s substantially higher than last year’s $380 billion figure.
Microsoft, Alphabet, Amazon, and Meta (META) are forecasted to collectively spend around $650 billion on AI-related infrastructure this year in a bid to secure leadership in the AI race.
Big Tech’s aggressive spending indicates their willingness to follow through on their AI plays.
Alphabet is aggressively scaling its custom microchip to power Project Genie, the company’s generative AI research prototype.
Microsoft is securing massive quantities of graphics processing units and central processing units to expand its AI infrastructure. That’s the only way it can meet the exploding enterprise demand.
A few weeks ago, Alphabet raised almost $32 billion through bond issuances. And that’s just one week after Oracle borrowed $25 billion. Morgan Stanley expects Big Tech companies to borrow as much as $400 billion throughout the year.
This is what tends to happen in a serious investment cycle. Companies don’t borrow billions of dollars unless they’re in a spending mood.
Now, investors are right to fear the latest market panic and are justified to look for plays insulated from AI disruption.
Nonetheless, this panic isn’t a signal to get out of the market—it’s a reminder to pay close attention to what happens to it instead.
Selloffs are bound to happen in a bull market, resulting in great businesses getting unfairly punished. And when this happens, savvy investors are given great buying opportunities.
Best regards,
Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research