Big Tech Stocks Lose Over $750 Billion in AI Driven Selloff

**SPEAKER_1** (0:02)
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This is Bloomberg Businessweek Daily, reporting from the magazine that helps global leaders stay ahead, with insight on the people, companies, and trends shaping today's complex economy, plus global business, finance, and tech news as it happens. The Bloomberg Businessweek Daily podcast with Carol Massar and Tim Stenovec on Bloomberg Radio.

**Tim Stenovec** (0:32)
The surge in oil, sparked by the escalating war, sending stocks and bonds lower. It's certainly part of today's story. The other part is what Charlie was just talking about with these tech stocks, Wall Street being rattled by these renewed concerns over these AI investments, these massive AI investments, and if they're going to pay off.

**Carol Massar** (0:47)
Yeah, I think that's such a huge question. The Bloomberg Mag-7, you've been talking about this, the total return index gauge of mega caps.

**Tim Stenovec** (0:53)
I keep mentioning this because it's such a superlative.

**Carol Massar** (0:56)
It is.

**Tim Stenovec** (0:57)
Given how crazy things have been over the last 14 months, I'm shocked that today's route is on par with what we saw post-liberation day.

**Carol Massar** (1:07)
Yeah, you're talking about April 2025, the terror-fueled meltdown. So a little bit of perspective right in context.

**Tim Stenovec** (1:13)
Alphabet down about 7% after raising its CapEx forecast. Tesla down 14% as profit fell even after strong EV deliveries. Ed Ludlow has been following this all. He's the host of Bloomberg Tech. He joins us from our San Francisco Bureau. Ed, I'm going to leave it to you on where to start here, because both of these are huge stories today, and they're driving certainly the mega-cap tech trade.

**Ed Ludlow** (1:33)
I think the way you frame it in how markets have reacted against history is completely right. This is a big move lower and Alphabet in particular.
We're on track for literally the biggest drop since May of last year. But a 7-percentage point move, when we got data that we were expecting, everyone expected them to raise capital expenditure guidance for this year and signal that CapEx will continue to grow over a multi-year horizon. It's exactly what we got. I know that you guys, I don't know, I have mixed feelings about this, but 7% is big because it's a 3.5 standards deviation move on a stock that typically won't react like that.
But I recognize a big change in psychology overnight from where we started our discussion yesterday of Mandate to now, which is there was the evidence that the AI spend is paying off yesterday. Now, it's much like how high is the cost going to be, and that's where we're at. Similarly, with Tesla.

**Carol Massar** (2:31)
That's a really good point, right? Like, OK, the buy-in is there, but at what cost, right? That's where the conversation is getting, I feel like, Ed, a lot more specific and detailed.
We're in, we get it, we understand what's going on here, but again, it's not at any cost.

**Ed Ludlow** (2:51)
Yeah, I mean, Alphabet, there's just so much rich data to try and work out what the direction of travel is with AI. So they have a backlog that's $515 billion, backlog of orders, and you'll remember Mandeep actually thought that number was a little bit low. He had expected it to be higher. They have $811 billion of contracted spending. In other words, there's all these projects that Alphabet's committed to, and as disclosed in their regulatory filings, all of those commitments total $811 billion. So people look at that and they're like, backlog versus spending.
There's a mismatch there still on the question of what are the returns that AI is giving these companies that are spending big?

**Tim Stenovec** (3:33)
Well, what's the other side of this coin, Ed, for Alphabet? The other side of this coin is that they can leverage the existing customer base that they have and bring in a ton of revenue as a result of being more efficient when it comes to ad sales and being more efficient and just better when it comes to Google Cloud, right? That's still the bull case.

**Ed Ludlow** (3:57)
Yeah, so there's also data points that are definitely evidence of demand. Google Cloud continues to grow at an astonishing rate, 82% year-on-year in the quarter gone. There is the backlog number of $514 billion and more than half of that backlog, this is like such CFO speak. Because I always like to think about the technology, I think we should say like is Google's AI getting traction with the world? And there's lots of evidence it is, but that $514 billion backlog, what they said was very specific. They expect more than half of it to translate into revenue over two full financial years.