Alphabet's $185B CapEx Plan Sparks Debate as AI-Software Concerns Spread
Google delivered solid numbers, but are they good enough to attract buyers?
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The S&P 500 dropped about 0.3% on Wednesday, which appears to be mild, but it masked very aggressive selling in some areas of the market. The software-related sector of AI has been under pressure since the Microsoft (MSFT) earnings report and gained further traction when there was a negative reaction to great results from Palantir (PLTR) .
On Wednesday, the selling spread to the semiconductor sector after a negative response to earnings from Advanced Micro Devices (AMD) and continued pressure on Nvidia (NVDA) . This selling also affected the data-center group and stocks such as IREN (IREN) and CoreWeave (CRWV) .
High Growth Under Pressure
The nervousness also prompted investors to dump high-P/E growth stocks. The Innovator IBD50 fell 3.7% and all 50 of the stocks in the list were in negative territory at midday. Three gold mining names managed to turn green by the end of the day.
Alphabet (GOOGL) , Meta (META) , and Amazon (AMZN) were all under pressure as investors are worried about a negative reaction to Google’s report after the close.
Despite the intense ugliness in place, 47% of stocks were in positive territory. meanwhile, groups such as financials, retail, and energy were oblivious to the carnage in other areas of the market.
Alphabet's Capital Expenditure Dilemma
The big question now is whether Google can help to shore up the AI sector or will the group continue to reprice?
Alphabet is reporting EPS and revenue that is ahead of expectations, but capital expenditures are expected to be much higher than originally forecast. That caused an initial selloff, but the stock rebounded after the company noted, "We're seeing our AI investments and infrastructure drive revenue and growth across the board. To meet customer demand and capitalize on the growing opportunities we have ahead of us, our 2026 CapEx investments are anticipated to be in the range of $175 to $185 billion."
The Game Plan
Alphabet's conference call and forward guidance will be key, but this was a good report and the increased capital expenditure appears to be paying off. However, the market is concerned about valuation and margins and that is a high bar to jump right now.
Data center names such as TeraWulf (WULF) like the capex spending, so there are some beneficiaries to the development.
We have a very chaotic market environment right now with some very dangerous and difficult action to navigate. Stay vigilant and be patient if you are looking to put some capital to work.
Have a good evening. I’ll see you Thursday.
At the time of publication, Rev Shark was long GOOGL, WULF and AMZN.
