Släpper datacenter: Stocks pulled back from record levels on Tuesday after Alphabet tossed cold water on the latest wave of AI exuberance by seeming a little too exuberant.
The Nasdaq dipped 0.2%. The Dow fell 127 points, or 0.3%. The S&P 500 dropped 0.2%. All three have closed at records in four straight sessions.
Alphabet stock was down after the company unveiled a massive stock offering amid efforts to build out artificial intelligence infrastructure. The company said during its first-quarter earnings call it planned $180 billion to $190 billion in 2026 capital expenditures.
While that’s good news for companies that rely on massive spending related to AI, like chip stocks, the rest of the market was struggling.
“The data center buildout is keeping the US economy afloat, its beneficiaries are continuously taking the stock market to new highs, and the technological advancements are exciting but we are being reminded again how expensive and capital heavy it all is, especially for the major hyperscaler spenders,” writes Peter Boockvar, chief investment officer at One Point BFG Wealth Partners.
22V Research’s Dennis DeBusschere wrote earlier in the morning that some beneficiaries of AI were starting to correct.
“We would look to add to the AI capex beneficiary baskets AFTER the volatility of the Price Momentum declines,” DeBusschere writes. “High single-stock implied volatility (99th percentile) and accelerated turnover rates in the price mo factor suggest a heavy influence from retail ‘swarming’ and momentum chasing.”
He argues a retreat in 10-year Treasury yields has led some of the chasing in momentum stocks to unwind.
“We favor Retail, Banks and Airlines now,” he writes. “They would benefit as/if 10yr yields grind lower and the economic expansion continues at the roughly 2% real GDP pace. These industry groups have lagged significantly.”
