Don't Be Misled by Earnings! Even Bulls Warn: AI Capital Expenditure May Have Peaked, Two Major Warning Signs Emerge

The artificial intelligence (AI) investment boom continues to drive global capital markets, with tech giants pledging hundreds of billions of dollars to expand their operations. However, as capital expenditures accelerate, Jim Paulsen, Chief Investment Strategist at Leuthold Group—known for his long-term bullish outlook—has issued a warning that the AI spending wave may soon cool down, with the market potentially facing two major risks and increased volatility.

Despite ongoing market focus on earnings reports, the latest Q2 data shows that the 'Big Four' tech giants—Meta (META-US), Microsoft (MSFT-US), Alphabet (GOOGL-US), and Amazon (AMZN-US)—have further raised their spending guidance for 2026 compared to earlier forecasts. Their combined capital expenditure ceiling is projected to reach a record high of $750 billion by 2026, a significant increase from last year's $455.8 billion.

Nevertheless, Jim Paulsen believes warning signs are emerging. He first highlights the recent weakness in AI-related stocks as a clear signal that investors are beginning to brace for a slowdown in spending growth.

Indeed, companies such as Alphabet, Tesla, and Meta have seen their stock prices plummet following recent earnings announcements, reflecting growing investor caution over whether these massive capital outlays will yield proportional returns.

Additionally, the second market trend Paulsen identifies is a sharp decline in U.S. core capital goods orders.

He analyzes that amid fluctuations in oil prices, bond yields, and the U.S. dollar exchange rate, the market has already priced in expectations of slowing capital expenditure.

He emphasizes that if U.S. core capital spending stagnates or declines over the next six months, many overly optimistic investors will be forced to reassess their positions, potentially triggering significant shifts in market sentiment.

Concerns about a potential slowdown in AI spending are not limited to Paulsen. As early as early July, UBS issued a forecast stating that capital expenditure growth among hyperscale cloud providers will experience a 'sudden brake' within three years.

UBS estimates that while spending growth remains high this year, it will slow significantly to 25% next year and could drop to just 6% by 2028.

Regarding this potentially collapsing 'AI investment wave,' Steve Eisman, a renowned market bear, has issued a stern warning. He argues that the current market environment has devolved into a single-trade dependency on AI development, and if any hyperscale tech giant decides to cut spending, the U.S. stock market could face a 'straight-line plunge' with severe consequences.

As investors shift from euphoria to rational scrutiny, the sustainability of AI capital expenditure will undoubtedly become a key determinant of future market direction.