AI bubble watch: Spooked market sparks $1 trillion Friday tech sell-off

Are investors already getting weary of tech's golden goose, artificial intelligence?

On Friday, tech stocks took a hit on Wall Street, and the underlying cause seems to be alarm over record AI infrastructure spending. Microsoft, Amazon, Alphabet, Nvidia, Amazon, Meta, and Oracle were among just some of the companies whose falling shares accounted for $1 trillion in losses from Big Tech stocks, as CNBC reported.

Big tech companies like Amazon and Google have been furiously ramping up capital expenditures to build AI data centers and shifting focus to AI products and services. 

The immediate spark for the Friday sell-off was the Amazon fourth-quarter earnings report. The e-commerce giant projected that its capital expenditures would reach $200 billion in 2026. CNBC reported that Amazon's Capex figure was $50 billion higher than expected, and the stock market reacted accordingly.

Speaking to CNBC, GAM Investments' investment director Paul Markham explained why AI would affect these companies on the stock market.

“Questions over the extent of capex [capital expenditures] as a result of LLM build-outs, the eventual return on that, and the fear of eventual over-expansion of capacity will be persistent,” Markham told CNBC.

However, the cold feet from investors regarding AI seems to be a fairly recent development, at least when it comes to stock market results. Just a few weeks ago, Facebook and Instagram owner Meta announced it planned to allocate an additional 73 percent of its capital spending, or roughly $115 billion to $135 billion, to AI development. Unlike the recent Amazon announcement, Meta's stock went up 10 percent on this news.

There are also reasons to be skeptical of an AI bubble, however.

Also on Friday, NVIDIA CEO Jensen Huang insisted that massive increases in capital expenditures are "justified," as the tech leader told CNBC's "Halftime Report" hosts. After making these comments, CNBC reported that NVIDIA shares rose 8 percent.

NVIDIA is often seen as a bellwether for a possible AI bubble, as the company sells the chips used by AI companies like OpenAI, Meta, and Google. At Davos, Huang said that the massive investment in AI seemingly proves it's not a bubble. NVIDIA would be a massive loser if AI did prove to be a bubble, of course.

Still, there were signs that Amazon's stock was rebounding slightly after Huang's comments.