NEW YORK, Feb 5, 2026, 10:44 (EST)
- U.S. stocks dropped following Alphabet’s announcement of a steep rise in capital spending for 2026, reigniting concerns over AI returns
- Software and data-services stocks remained under pressure as investors reevaluated their business models and valuations
- World equities slipped as investors held back ahead of Amazon’s earnings report and new U.S. labor figures
U.S. stocks dropped Thursday as Alphabet’s announcement of a steep rise in capital spending sparked fresh concerns over when AI-driven growth will start turning a profit. By 9:41 a.m. ET, the Dow had slipped 0.56%, the S&P 500 lost 0.51%, and the Nasdaq was down 0.50%. Alphabet’s shares tumbled 2.6%. “The AI trade … is perhaps the extinguisher this year,” said Melissa Brown, managing director of investment decision research at SimCorp. Reuters
The market mood flipped quickly this week. Investors who were upbeat on AI headlines are now focused on budgets—and the threat that smarter tools might undercut the pricing power of established software companies.
Alphabet projects capital expenditure of $175 billion to $185 billion in 2026, a steep jump from $91.45 billion planned for 2025. Analysts had expected around $115.26 billion, according to LSEG data. CEO Sundar Pichai described this year’s capex as “an eye towards the future,” noting the company has been “supply-constrained.” Google Cloud revenue surged 48% to $17.7 billion, with Gemini attracting more than 750 million monthly users. D.A. Davidson analyst Gil Luria said this cloud growth is “importantly higher” than Microsoft Azure’s for the first time in years. Zacks strategist Ethan Feller added, “Cloud at 48% growth with rapidly expanding margins is no longer a ‘show me’ story: they showed us.” Reuters
Stocks slipped for the fifth time in six sessions as the tech sector continued to weigh on markets. Investors also digested central bank moves in Europe. The Bank of England narrowly held rates at 3.75% in a 5-4 vote. Meanwhile, the European Central Bank left euro zone rates steady at 2%, noting “the outlook is still uncertain.” Reuters
Shares in software and data services showed a mixed picture after a sharp selloff earlier this week, with ServiceNow, Salesforce, and Microsoft each losing about 2.6% in morning trading. The S&P 500 software and services index slipped 1.8%, capping a six-session stretch that wiped out more than $800 billion in market value. Meanwhile, short interest — bets on stock declines — rose across a number of software-as-a-service firms. “At the moment, we have not suggested people to buy software for that reason,” said Manish Kabra, Societe Generale’s lead U.S. equities and multi-asset strategist. Saxo’s John Hardy added, “There’s a lot of leverage in this market.” Reuters
Wednesday’s session set a sharp tone. Advanced Micro Devices plunged 17% after its revenue forecast shook investor confidence. Palantir dropped nearly 12%, and Nvidia slipped 3.4%, as traders wrestled with which firms stand to gain or lose from the AI surge. “The market is suddenly skeptical and concerned about it,” said Jed Ellerbroek, portfolio manager at Argent Capital. GuideStone’s Josh Chastant added, “We’re a bit bearish on software in general.” Reuters
European shares slipped Thursday, with the pan-European STOXX 600 retreating 0.5% from the record high it hit just a day earlier. Investors are weighing earnings reports and eyeing the ECB’s next move. Tech stocks in the region bounced back, climbing 1.7% after recent losses linked to worries about an Anthropic AI update impacting software companies. Reuters
Earnings are the next focal point. Amazon is set to report after the close, with investors watching closely for any updates on its capex strategy, especially after Alphabet’s results unsettled an already jittery market. Nvidia, the final “Magnificent Seven” megacap to announce earnings this cycle, will release its numbers on Feb. 25.
Crypto and commodities felt the risk-off mood too. Bitcoin dropped under $70,000 for the first time since November 2024. Gold and oil futures each slipped roughly 2%, Investopedia reports. Investopedia
The bigger threat to equities lies in AI costs climbing quicker than cash returns, tightening free cash flow and putting pressure on buybacks, hiring, and M&A decisions. On the flip side, if upcoming earnings reveal AI-driven revenue matching or surpassing those expenses, the market might revert to its usual pattern of favoring scale.
U.S. data continues to influence markets behind the scenes. The Labor Department reported a bigger-than-anticipated rise in new unemployment claims last week. Meanwhile, the Bureau of Labor Statistics postponed the January jobs report to next week due to delays from a partial federal shutdown.
