Wall Street saw a substantial decline in tech stocks, with the Nasdaq 100 falling 1.9% and the S&P 500 down 1.2%. The 'Magnificent 7' tech giants suffered their biggest one-day drop since April 2025, collectively losing $797 billion in market value, driven by investor skepticism about AI spending returns. This sell-off was triggered by disappointing earnings reports from Alphabet and Tesla.
Alphabet shares plunged 7.1%, marking its largest drop since May 2025, after reporting its first-ever cash flow negative quarter due to increased capital expenditure. The company raised its capital spending forecast to as much as $205 billion in 2026, with $45 billion spent in the second quarter alone. Similarly, Tesla's stock tumbled 15%, its worst performance since March 2025, after missing profit estimates and CEO Elon Musk indicating 2026 would be a "massive capex year." Investors are questioning the return on investment (ROI) for these massive AI expenditures.
Other major AI spenders also saw declines, with Microsoft sliding 2.2%, Amazon.com sinking 4.6%, and Meta Platforms decreasing 3.4%. These companies had previously signaled intentions to spend as much as $725 billion this year on AI ambitions. In contrast, Apple, which has largely refrained from the heavy AI spending spree, saw a shallower decline and has gained 11% in July and 18% in 2026, indicating investor preference for companies with healthier balance sheets and less undefined AI expenditure.
The market jitters were intensified by a broader macro backdrop, including Brent crude futures rising past $100 a barrel, reaching their highest level since late May. This surge in oil prices, partly due to escalating Middle East tensions, has revived inflation worries and led traders to increase bets on a Federal Reserve rate hike as early as next week, further complicating the investment outlook for tech companies relying on significant capital for AI development. Analysts now fully price in a rate increase by September.
