Key facts
- Alphabet raised its 2026 capital expenditures to as much as $205 billion.
- Alphabet reported negative free cash flow for the first time since its 2004 IPO.
- Alphabet's shares experienced their worst day in over a year, falling more than 7%.
- The Magnificent Seven index declined 4.8% following Alphabet's earnings report.
- Microsoft and Meta Platforms are set to release earnings, with Apple and Amazon to follow.
- Microsoft has reportedly spent over $190 billion on capital expenditures this year.
- The Philadelphia Stock Exchange Semiconductor Index (SOX) has seen significant volatility and losses in July.
For years, investors have rewarded technology giants for lavish spending on artificial intelligence, provided revenues continued to rise. However, this dynamic appears to be shifting, with companies like Alphabet Inc. experiencing significant stock declines despite strong revenue growth in areas like cloud computing.
Alphabet's shares plunged over 7% after the company announced an increase in its capital expenditures to as much as $205 billion for 2026 and reported negative free cash flow for the first time since its 2004 IPO. This focus on capital expenditure (capex) has become a point of concern for investors, who are now prioritizing less spending and are wary of rising debt and capital raises.
The market's reaction to Alphabet's results highlights a change in sentiment towards the 'Magnificent Seven' tech stocks. The index tracking these companies fell 4.8% following Alphabet's report, its worst day since April 2025, and is now down 3.7% for 2026. This shift is leading to a rotation in market leadership, with companies like Micron Technology Inc. and Advanced Micro Devices Inc., which benefit from Big Tech's AI investments, gaining prominence.
Other major tech players are also facing scrutiny. Microsoft Corp., despite significant AI investments, has seen its stock fall 21% this year. Meta Platforms has dropped 9.8% as investors question its AI spending, while Amazon.com Inc. has remained relatively flat. Collectively, Alphabet, Microsoft, Amazon, and Meta are projected to spend approximately $724 billion on capital expenditures this year and nearly $950 billion in 2027.
This increased spending by tech giants is also impacting the semiconductor industry. The Philadelphia Stock Exchange Semiconductor Index (SOX), which had gained 101% in the first half of the year, has lost 17% in July. The index has experienced high volatility, with 17 moves of 5% or more this year, a level not seen since 2008.