Bull runs aren’t immune to selloffs. Here’s what you need to do when that happens.
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| Curious? Continue reading below to know why! Bull runs aren’t immune to selloffs. Here’s what you need to do when that happens. Microsoft ’s most recent quarter looked like a victory lap as it posted its first-ever USD 50 billion quarter in cloud services revenue. Yet, despite this strong result, Wall Street hit the “sell” button. Microsoft’s stock tumbled so violently, it lost USD 357 billion in market value in a single trading session. It was Microsoft's steepest one-day wipeout since 2020… and it's still down by nearly 17% year to date.
Other tech giants have followed suit. Alphabet's cloud-tech revenue grew 48% in the latest quarter. Meanwhile, Amazon's cloud business rose 24%, which beat analyst estimates. All three stocks are down since reporting earnings a few weeks ago… and it’s because software is in a rout. This round of selloffs came about when AI startup Anthropic's Claude coding tool reignited fears that "software will get automated away." The result? Investors panicked and a wave of selloffs occurred, wiping out billions of dollars in market value for Big Tech firms. Unfortunately, another round of selloffs erupted, and this time, it wasn't just software firms that were victims—shares of delivery and payments companies nosedived too. This was brought about by a research paper published by Citrini Research, a firm specializing in macro and thematic stock analysis. According to the hypothetical scenario drawn up in the research paper, AI could potentially push the U.S. unemployment rate above 10% by 2028, negatively impacting software firms, payment processors, and even delivery app companies like DoorDash. The research piece says AI could disrupt the “one long daisy chain of correlated bets on white-collar productivity growth” that these firms are composed of. Shares of DoorDash, American Express, Uber, Mastercard, Visa, and others fell by 4% or more. On top of this, IBM ’s stock tumbled by 13% following Anthropic’s release of an AI tool that can modernize and streamline COBOL—a decades-old programming language that’s run on IBM computers. Adding more fuel to the fire is the investor skepticism surrounding Big Tech’s capital expenditures. Alphabet has earmarked up to USD 185 billion in capital expenditures ("capex") this year. That's more than it has spent in the past three years combined. Most of that capex is aimed at building the data centers that power AI projects. The five biggest U.S. tech companies are forecast to hit about USD 650 billion in capex in 2026, based on company guidance and consensus estimates. That's nearly triple the USD 224 billion total in 2024, and it's substantially higher than last year's USD 380 billion figure. Microsoft, Alphabet, Amazon, and Meta are forecasted to collectively spend around USD 650 billion on AI-related infrastructure this year in a bid to secure leadership in the AI race.
Big Tech’s aggressive spending indicates their willingness to follow through on their AI plays. Alphabet is aggressively scaling its custom microchip to power Project Genie, the company's generative AI research prototype. Meanwhile, Microsoft is securing massive quantities of graphics processing units (GPUs) and central processing units (CPUs) to expand its AI infrastructure. That's the only way it can meet the exploding enterprise demand. A few weeks ago, Alphabet raised almost USD 32 billion through bond issuances. That's just one week after Oracle borrowed USD 25 billion. Morgan Stanley expects Big Tech companies to borrow as much as USD 400 billion throughout the year. According to Professor Joel Litman , Chairman and CEO of Valens Research and Chief Investment Officer of Altimetry Financial Research, this is what typically happens in a serious investment cycle. Companies don't borrow billions of dollars unless they're in a spending mood. That said, should you be worried about the recent selloffs? Investors are right to fear the latest market panic and are justified to look for plays insulated from AI disruption. Nonetheless, this panic doesn’t mean you should get out of the market—it’s a reminder to pay close attention to what happens to it instead. Selloffs are bound to happen in a bull market, resulting in great businesses getting unfairly punished. When this happens, investors who don’t give in to panic easily are given great buying opportunities. Hope you’ve found this week’s insights interesting and helpful. Stay tuned for next Wednesday’s The Independent Investor! Every so often, Wall Street behaves like it’s never seen a chart, never read an earnings release, and never heard a CEO speak on an earnings call. Learn more about this denim jeans brand’s viral meme in next week’s article! |
Miles Everson
CEO of MBO Partners and former Global Advisory and Consulting CEO at PwC, Everson has worked with many of the world's largest and most prominent organizations, specializing in executive management. He helps companies balance growth, reduce risk, maximize return, and excel in strategic business priorities.
He is a sought-after public speaker and contributor and has been a case study for success from Harvard Business School.
Everson is a Certified Public Accountant, a member of the American Institute of Certified Public Accountants and Minnesota Society of Certified Public Accountants. He graduated from St. Cloud State University with a B.S. in Accounting.
