Large tech stocks spending heavily on AI could be due to lower returns

AI Hyperscalers such as Amazon, Microsoft, Alphabet and Meta are investing billions of dollars in planning to spend more technology and more, but history has warned stock prices.

While the tech giants are trapped in the AI ​​arms race, their spending range has potentially negative implications for inventory, Morningstar's analysis shows.

Data over the past 60 years show that the top 20% of capital expenditure stocks compared to current sales have since fallen below compared to all other CAPEX quintiles.

Philip Strael, chief investment officer at Morning StarWealth, told Business Insider this week that this would make spending more accessible to technology and increase competition from large spenders.

Higher capital investments “generally increase supply,” Straehl said. “Moneying these investments is even more difficult.”

There have been hundreds of millions of dollars so far for the four major high-tech companies listed above, and is expected to spend $364 billion on AI development in 2025 alone.

Since 2024, spending has begun to be reduced to free cash flow from Alphabet, Microsoft and Amazon.

Investors seem to be shrugging this for now, but Straehl said huge amounts of spending should be important.

“The core businesses of these companies are still going well,” he said. “But I think what's important in the future is the ability to monetize generative AI.”

Bob Doll, chief investment officer at Crossmarket Global Investments, told Business Insider he agreed to Straehl's analysis. He highlights the free cash flow factor for his portfolio as the market is highly valued amid uncertainty in the macroeconomic background.

“Companies that have significantly increased maintenance are usually delayed for a while, but maintenance is spent and you can see what the return on that equipment is,” said the doll. “That's why I share that concern.”

In terms of how Straehl is approaching this market, he said he is playing it safely with investors' sentiment and historically market ratings.

“The central tenet of our investment philosophy is that the price paid for a particular cash flow should be a major factor in our investment decision,” Straehl adds, “We are once again waiting for more risk reductions and more attractive opportunities.”