Are Amazon, Alphabet, Meta, Microsoft, ... Spending Too Much ?

[marcus]

From https://finance.yahoo.com/markets/s...st-coined-phrase-magnificent-7-110237998.html
Title : The economist who coined the phrase ‘Magnificent 7’ says the very thing that made them extraordinary is under threat
By Eleanor Pringle , Sept 2026

... Bank of America's Michael Hartnett took inspiration from the Wild West, coining the phrase "Magnificent 7" for a group of American companies that have proved to be the main driver of the stock market ...

And while the Mag 7 (Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla) remain dominant forces in the asset class, Hartnett now says that the very thing which once made them a portfolio "must" is now a vulnerability ...

"To a certain extent, the rise of the Mag 7 was because nobody wanted to hold government bonds: '.. They spend like drunken sailors. Why do I want to lend to them?…I'd rather put my money with companies that have tons of cash and…don't spend any of it.' That was the Mag 7," Hartnett said.

However, AI hyperscalers have now begun spending—to a breathtaking degree. Global AI investment is expected to exceed $1 trillion in 2026 ...

But with bond yields rising at the longer end of the scale (10-year Treasuries sit at a nearly two-decade high, while 30-year Treasuries haven't sat at their current levels of more than 5.5% since 2002), borrowing costs across the economy have increased.

The tech sector has run down its pile of cash and begun borrowing heavily ... Increasingly, that means the prospects of the Mag 7 are tied to the very asset class it was once used as a hedge against ...

 

[pantaiema]

Are Amazon, Alphabet, Meta, Microsoft, ... Spending Too Much ?
Investors could do initial investigation by skimming their financial report, looking into revenue, free cash flow and compare it with their spending. By law, they are required to report their earning every quarter.

Heavy spending? evidence say yes. But the bigger question is whether this spending is unjustifiable, unsustainable.

A lot of the current spendings of these Mag 7 are linked to the companies such as OpenAI and Anthropic, which are still unprofitable and require enormous amounts of capital and computing power.

Will the AI ecosystem generate enough revenue and profit in the future to justify all this spending? If AI revenue grows faster than AI-related costs and investment, the spending could prove worthwhile. But if Big Tech builds too much capacity before AI becomes sufficiently profitable, today's huge investments could become a major drag on future free cash flow. Remember most of this mag-7 is currently dealing with generative AI models, AI data centres; there are still much room to grow with Physical AI (E.g warehouse robots, domestic robots, self-driving cars, etc).

Any equity investing carries risk as noone knows what the future will be. But if the reward is much higher then risk many acute investors, are willing to take that risk. This is often called asymmetrical investing. You keep your money in risk free investing, it will also carry another type of risk, e.g get eaten by inflation.

Also remember there are reasonable number of high quality stocks that pay dividend around 5%, but they are still growing (e.g their stock price still keep going up). Around 5% dividend yield, is quite similar to the yield you get with 10yr T-Bond, but it is more liquid as you do not need to lock your money such as the case for 10yr bond. Adding to the benefit, the possibility of benefiting from the stock price increase (but also the risk the stock price decline). But even it is a risk free investment such as T-Bonds, gilts, they could also drop significantly if you do not keep it until the maturity date.

 

[marcus]

From https://finance.yahoo.com/technolog...ai-faces-a-high-stakes-paradox-163141172.html
Title : 'Both cannot be right': AI faces a high-stakes paradox
By Michael B. Kelley and Julie Hyman , Sept 2026

... Apollo chief economist Torsten Sløk wrote : "The analysts covering tech expect the sector's operating cash flow to more than double to roughly $2.4 trillion by 2028, an increase of over $1.2 trillion. Meanwhile, the analysts covering the other sectors in the S&P 500, which are tech's customers, expect those companies to add much less operating cash flow,"

"The bottom line is that either tech's customers will generate a lot more cash than their analysts expect, or tech's cash flow forecasts are too optimistic, which raises the question of who exactly will be writing all those checks to buy AI services."

Similarly, a new report from Bain & Company says : "... sustaining this level of investment would require an AI market approaching $6 trillion annually"

The problem is that the consumer and enterprise AI market will likely total $1.2 trillion to $1.8 trillion, according to the Bain report, leaving a $4.2 trillion gap.

"Dramatic innovation," not just productivity gains, will be necessary to close that gap, the report said ...