Tech’s capex crunch

Alphabet and Tesla shares tumbled 6.89% and 14.52% today, respectively, helping drag the Magnificent Seven to a combined $767 billion loss in market value—the group’s biggest one-day wipeout since the tariff-driven selloff in April 2025.

Alphabet reported EPS of $9.11 on $119.8 billion in revenue, comfortably topping expectations of $2.95 and $116.9 billion, while extending its streak of double-digit revenue growth to 12 consecutive quarters. But investors were more focused on the company’s ballooning capex forecast of up to $205 billion this year (up from $180–$190 billion), with even higher spending expected in 2027. At that level, Alphabet could become tech’s biggest spender.

Meanwhile, Tesla saw revenue jump 26% from a year ago and beat expectations, despite earnings missing estimates. And like Alphabet, Tesla reaffirmed plans to spend more than $25 billion on capital expenditures this year—roughly triple last year’s level.

“We should be spending on capex as fast as we can spend, as fast as we can without it being too wasteful,” Elon Musk said on the earnings call.

The AI rotation

Alphabet and Tesla’s results offer an early read on how investors may react to the rest of Magnificent Seven earnings, and by extension, the broader AI trade.

So far, money has been rotating away from AI’s biggest consumer-facing winners, like Alphabet, and into the companies building the industry’s backbone—think utilities, power, or cooling. That’s not necessarily a bad thing. It suggests investors are still bullish on AI, just through a different part of the ecosystem.

The concern, according to JPMorgan strategist Jason Hunter, is what happens if that rotation loses steam. He points to the late 1990s, when infrastructure stocks kept climbing even as actual internet companies’ stocks stalled out. JPMorgan Asset Management’s Michael Cembalest called that divergence a market “head fake.”

There are similar dynamics at play today: Chip and infrastructure stocks have rallied more than the AI companies they’re supposed to be supplying.

So if Big Tech keeps stumbling and infrastructure names stop carrying the baton, investors could start exiting the AI trade altogether, turning into a broader selloff.—SY