What Wall Street needs to regain its AI confidence
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The honeymoon with AI is over on Wall Street. Investors will no longer bid up every AI stock on nothing but hopes of future revenue for the technology.
Why it matters: 2026 will be a year of harsher judgment from tech investors, who are already indicating that they plan to reward the fundamentals again: disciplined spending coupled with returns.
What they're saying: To feel better about the AI trade, investors need to see "actual revenue," Alexis Maubourguet, founder and chief investment officer with ADAPT Investment Managers, tells Axios.
- That also means proof that AI can lead to products or services that make, or save, money.
By the numbers: Hyperscalers are expected to spend roughly $700 billion by the end of 2025. It is hard to calculate the return on that investment.
- Spending by the biggest tech companies makes up about 20% of global capex, roughly in line with their share of global corporate revenues and earnings, according to Ashley Lester, chief research officer at MSCI.
- Excluding technology, U.S. companies spend roughly 4% of sales on capex, the lowest among major regions. That level of capex was tolerated by the market for a while. Now, however, investors want to see returns.
Threat level: A pivot toward frugality could sting companies like Oracle.
- Much of the bull case for Oracle rests on its remaining performance obligations — or RPO — the value of contracted future revenue.
- RPO is not guaranteed. It can shrink if customers cancel or renegotiate deals, or if the company cannot deliver capacity fast enough.
- Bloomberg reported that Oracle delayed the rollout of some of its OpenAI data centers amid labor and material shortages. The company denied this.
What they're saying: "Everyone will now be benchmarked against the efficiency that Google has right now," Mandeep Singh, an analyst with Bloomberg Intelligence, tells Axios.
- The shares of Alphabet, Google's parent, are up over 75% in the last six months, outpacing the S&P 500's nearly 13% gain in the same window.
- Google has kept its capex at about a quarter of its yearly revenue, while competitors such as Meta push spending plans to nearly half of revenue.
Reality check: It is "very rational" to reward stocks for efficiency and punish those who lack it, Singh says, adding this pattern from market participants is part of why he does not see a bubble right now.
What to watch: Advertising.
- Singh notes OpenAI could release an ad offering in the next six months, a revenue opportunity for the company, which is on track to make just $20 billion this year. Any revenue windfall from that could fuel the AI rally.
- In lieu of that, investors will be waiting for AI to show them the money.
