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CURRENT PACE OF AI SPENDING IS CONCERNING

ADMIN || 29th October 2025

A spending boom for AI has sent the Magnificent Seven’s share prices to record highs, but is also raising concerns about whether companies are laying out too much on the new technology.

Alphabet, Microsoft and Meta will report earnings on Wednesday, with Apple and Amazon on Thursday. They’re a diverse group of companies: three cloud giants, one phone maker and an advertising firm, but they’re all big spenders on AI. Meta spent $16 billion last quarter, while Microsoft spent $17 billion and Alphabet $22.5 billion.

One way to track AI spending is by measuring the sheer amount of stuff tech companies own, the property, plant and equipment they hold after allowing for depreciation. The chart below shows total net fixed assets for all seven members of the Magnificent Seven plus AMD, Broadcom and Oracle.

Oracle, which has already reported its most recent quarter, is spending very aggressively to catch up with the AI hyperscalers like Microsoft and Alphabet. Its stock has surged this year in response, and has jumped 101% in the past six months. But Oracle is also the most overvalued compared to its historical average and the one that has seen the biggest decrease in free cash flow as it spends. Its net fixed assets rose 130% from a year earlier in the quarter through Aug. 31, compared with cloud revenue growth of 28%.

Here’s what the year-on-year growth trend looks like for AMD, Broadcom, Oracle and the Magnificent Seven. It dipped in the second quarter, which may be a sign that the companies are turning a little more cautious on their spending.

There’s a risk AI either becomes commoditized or advances so quickly that the above names are left with a bunch of out-of-date GPUs. There’s also a risk that AI just ends up being less profitable for the end clients than expected and spending slows or stabilizes.

Any signs from earnings in the next couple of days that CEOs are having second thoughts or that companies are slowing their spending could have a knock-on negative effect, not just on the AI stocks, but also power utilities and the wider S&P 500.

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