The “AI Trade” is no longer a guaranteed lift; it is becoming a capital-intensive battleground.
Wall Street slid to multi-week lows on Thursday as investors digested a one-two punch: surging capital expenditure plans from Alphabet and a brutal rotation out of software stocks. The S&P 500 Software & Services Index logged its seventh consecutive decline, wiping out roughly $830 billion in market value since late January.
💸 THE CAPEX SHOCK:
- Alphabet (Google): Shares fell 2.6% after announcing plans to double capex this year to stay ahead in the AI arms race.
- The Aggregate: Big Tech is collectively expected to pour over $500 billion into AI infrastructure this year, raising sharp questions about ROI and margin compression.
- The Sentiment: Melissa Brown (SimCorp) sums it up: “The AI trade which was the accelerant last year is perhaps the extinguisher this year… it is also going to help certain kinds of companies but hurt, particularly software.”
🌪️ THE SOFTWARE SLUMP: It’s not just about infrastructure costs; it’s about existential risk.
- Major SaaS players like ServiceNow and Salesforce continued to slide on fears that generative AI tools are actively denting demand for traditional seat-based software models.
- Qualcomm added to the gloom, dropping 8.2% on a downbeat revenue forecast.
💡 ANALYST TAKEAWAY: We are entering the “Show Me The Money” phase of the AI cycle. The market is punishing companies for simply spending on AI (Alphabet) and punishing companies that might be replaced by AI (SaaS). Meanwhile, capital is rotating into cheaper pockets: Small Caps (S&P 600) and Mid Caps (S&P 400) both bucked the trend to close higher. The era of blind tech buying is over; stock selection is back.
👇 Tech Investors: Are software stocks oversold, or are we witnessing a permanent repricing of the SaaS business model?