Wall Street has been busy reviewing earnings reports the past two weeks and it is clear the AI infrastructure arms race has reached an unprecedented scale.
Combined 2026 capital expenditure guidance from the major hyperscalers now exceeds $680 billion — nearly 5x the ~$140 billion spent in 2023. Amazon and Alphabet alone are guiding to ~$380 billion, more than the other five hyperscalers combined. Despite strong earnings beats, markets are punishing stocks on massive CapEx guidance spending for 2026. Will it be money well spent?
Goldman Sachs projects cumulative hyperscaler CapEx from 2025-2027 will reach $1.15 trillion — more than double the $477 billion spent from 2022-2024. Notably, Wall Street has consistently underestimated CapEx growth, with actual spend exceeding forecasts by 50%+ in both 2024 and 2025. As you can see in the graphic below, it is all about AI training and building data centers.
We Can’t Lose….
No longer are the Mag 7 stocks cash rich companies with fat margins. While on the precipice of becoming sleepy dividend stocks in their life cycle, these companies will now be borrowing money and leveraging their balance sheets as a bet on the future of artificial intelligence. This means cash flow compresion as CapEx spending outpaces operating cash flow.
Ironically, some of the safest companies in history are now suddenly thrust into a prisoner’s dilemma scenario as no hyperscaler can afford to fall behind; which may be driving irrational spending and the potential for stranded assets. But to say that is blasphemy in Silicon Valley. Time will tell.
Stocks Tread Water Below Resistance
Stocks have been choppy and volatile but when you zoom out on the weekly chart below it looks like we are consolidating within an uptrend. Given the longer timeframe it is possible this continues for some time longer. Under the hood we are seeing the MAG 7 stocks under pressure while everything else that has been ignored for the past five years may be a target by institutional investors.
Consolidation periods always test your patience and sometimes develop into a top if there is failure to re-ignite the uptrend. A decisive break out above the 7000 level would be good to see and we probably need to see breadth expand as it looks the MAG7 stocks may be taking a back seat in market leadership.
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President, Kisco Capital
