Markets didn’t just drift lower this week — leadership changed.
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The Nasdaq finished modestly down, but beneath the surface investors continued pulling money out of crowded AI and software trades and rotating into companies with steadier earnings and clearer cash flow. This follows the forced selling episode that began in crypto, spread into software, and exposed just how crowded the AI trade had become.
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The real shift isn’t about AI demand disappearing. It’s about how the AI story has changed.
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What started as a high-margin software growth theme has become a massive construction effort. The largest tech companies are now building data centers at a historic pace. Alphabet guided to roughly $175–$185 billion in 2026 capital spending. Amazon signaled roughly $200 billion. Across hyperscalers, total capex in 2026 is expected to approach $700–$740 billion.
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That level of spending changes the financial picture.
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When companies commit that much to data centers, chips, networking equipment, cooling systems, and power infrastructure, it absorbs a huge share of operating cash flow. Instead of returning capital to shareholders, they’re reinvesting nearly all of it. In some cases, free cash flow flattens. Debt issuance rises. Financial flexibility narrows.
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Investors are responding accordingly. Alphabet is down roughly 8% over the past month. Amazon has fallen about 16% this month alone. The issue isn’t collapsing demand — AWS and cloud growth remain strong — it’s the scale and timing of the spending.
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The question investors are asking is simple: how long until this spending turns into higher profits?
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Cloud demand remains real. AI usage is growing. But when spending rises faster than near-term revenue, it pressures margins and pushes out the payoff timeline. In a market where expectations were high and positioning was crowded, that shift matters.
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This isn’t a collapse of the AI theme. It’s a repricing of patience. Investors are becoming less willing to fund open-ended spending plans without clearer evidence of near-term earnings growth.
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And when capital tightens, money flows toward companies already generating steady cash — not those promising it further down the road.

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