Markets weigh AI’s threat to incumbents against big tech’s massive spend

Wall Street is wrestling with two competing fears about AI — and both are weighing on markets. Investors are selling companies they believe could be displaced by AI while simultaneously doubting that the hundreds of bns of USD big tech is pouring into the technology will generate meaningful returns anytime soon, Bloomberg reports. But Nomura International Wealth Management CIO Julia Wang argues that these two contradicting fears “can’t be true at the same time.”

The first fear is straightforward: AI may wipe out swaths of corporate America. Each new product launch from AI firms has triggered waves of selling in sectors ranging from wealth management and ins. brokering to software, logistics, and juridical services. Investors are scrambling to reassess which business models are at risk. Every new AI tool is being treated as another piece of evidence that change might arrive faster — and hit harder — than expected.

Investors’ second fear is that AI’s biggest champions are overspending without offering a clear timeline for returns. Microsoft, Amazon, Meta, and Alphabet are expected to spend more than USD 600 bn in capital expenditures in 2026 alone, reshaping their cashflow profiles. Microsoft and Meta have each lost 16% of their market value since 28 January, while Alphabet — widely seen as the frontrunner in the AI race — is trading 11% below its recent peak.

What has shifted is the market’s patience. For years, investors accepted that hyperscalers could spend heavily today to dominate tomorrow. Now, they are demanding clarity on when and how that payoff will materialize. “Investors were comfortable saying, ‘so long as it happens in the future, I’m comfortable with Microsoft or Amazon or Alphabet spending the money.’ Now they want to know more immediately when the payback will come — and we don’t have a clear picture,” Ameriprise Advisor Services’ Anthony Saglimbene said.

The consequences of that spending are already rippling through the real economy. Data center construction is tightening supplies of key components like memory chips, creating knock-on pressures across electronics, automotive, and telecom supply chains. “What is ahead of us between now and the end of this decade, in terms of demand, is bigger than anything we’ve seen in the past, and, in fact, will overwhelm all other sources of demand,” Lam Research Corp’s CEO Tim Archer told Bloomberg in a separate report.

And investors are raising questions about hyperscaler balance sheets. “This level of capex will consume almost 100% of hyperscalers’ cashflow from operations compared with a 10-year average of 40%,” wrote UBS Wealth Management’s Ulrike Hoffmann-Burchardi in a note to clients. “That spending is now increasingly being funded by external debt or equity financing,” she added.

Until investors can reconcile those competing narratives — that AI is both transformative and potentially overhyped — markets are likely to remain unsettled. “When the market finally feels these companies aren’t going out of business, it will realize AI is a tool that can lead to greater profitability,” said Saglimbene. “But we’re going to be in a period of volatility for the foreseeable future,” he added.

MARKETS THIS MORNING-

A lot of the Asia-Pacific markets we follow are closed today for the Lunar New Year. Of the few that are open, Japan’s Nikkei is in the red as investors continue to react to the country’s softer-than-expected 4Q 2025 growth.

THE CLOSING BELL-

The EGX30 fell 1.6% at yesterday’s close on turnover of EGP 9.9 bn (63.6% above the 90-day average). Local investors were the sole net buyers. The index is up 23.1% YTD.

In the green: Arabian Cement (+3.8%), ADIB (+3.0%), and Oriental Weavers (+2.3%).

In the red: Telecom Egypt (-12.4%), Egypt Aluminum (-6.0%), and Juhayna (-4.8%).