Don’t look now, but some of the technology markets are flashing warning signs for the first time in months. Given a mismatch between growth expectations—many of which have been boosted by AI—and what’s really happening in technology investment, the markets could rationalize the enthusiasm of the AI bubble quite quickly.
This AI elite group includes the largest cloud providers and hyperscale operators, such as Amazon Web Services, Microsoft, Google Cloud, Oracle, and Meta, as well as their largest suppliers. AI infrastructure to build GenAI apps is enormously expensive, so only the richest of companies can afford the billions of dollars in investment in new infrastructure.
But here’s the dirty secret of AI spending: It hasn’t surged enough to compensate for slowing capital spending growth in other areas of the technology markets. The profit share is even worse. The Mag7 provided nearly all the profit growth in the S&P 500 Index. If you strip out the profits provided by the Mag7, the rest of the companies in the S&P 500 had declining profit growth in 2023.