AI-fuelled Wall Street rally cools as Big Tech’s $400 billion capex triggers valuation jitters

The sharp AI-led rally on Wall Street appears to be losing steam as investors grow wary of heavy capital spending, stretched valuations and rising concentration risks. The Magnificent 7 — Apple, Microsoft, Amazon, Alphabet, Meta, NVIDIA and Tesla — now make up 37% of the S&P 500, raising concern that the market has become too dependent on a handful of mega-cap technology stocks.

Over the past week, sentiment around artificial intelligence has clearly turned. The trigger: Big Tech’s plans to collectively spend nearly $400 billion this year on AI infrastructure, prompting questions about sustainability and returns.

Capex Surge Raises Questions About AI Economics

Microsoft set the tone last week when it disclosed $34.9 billion in quarterly capital expenditure, with almost half funnelled into GPUs and CPUs to power AI systems. Alphabet plans to push its 2026 capex beyond $90 billion, Meta expects as much as $72 billion, and when Amazon is added to the mix, the combined number crosses $380 billion.

This unprecedented spending spree has set off a fresh wave of concern.

Investors fear that while the long-term AI opportunity remains intact, the near-term economics look strained. If revenue growth does not keep pace with rising infrastructure costs, margins could come under pressure. In a market where these stocks already trade at elevated valuations, even a small disappointment can spark large corrections.

Market Concentration Risk Comes Back Into Focus

The growing dominance of the Magnificent 7 has intensified market vulnerability. With more than a third of the S&P 500 now tied to just seven companies, any shift in AI sentiment disproportionately impacts the broader index.

AI Enthusiasm Moderates, Not Disappears

Despite the churn, analysts say investors are not walking away from AI. Instead, the tone has shifted from unbridled optimism to selective allocation. The long-term commercial potential of AI remains strong, but the path to monetisation is uncertain and capital-intensive.

The emerging "circular economy" around AI — where Big Tech companies buy GPUs, lease cloud capacity and sign multi-year compute agreements largely within their own ecosystem — is also raising eyebrows. Multi-year supply contracts with NVIDIA further lock in spending, raising the question of whether growth is demand-driven or market-structure driven.