Shares of two tech giants, Meta Platforms (META) and Alphabet (GOOGL), experienced significant declines following their respective quarterly earnings reports, driven by investor concerns over staggering capital expenditure plans for artificial intelligence (AI).
Meta's stock fell 3.3% on Wednesday, closing around $669, after analyst firm Needham warned the stock could face a 10% to 15% downside if growth targets are missed. The decline extends a roughly 10% drop since the company's Q4 2025 earnings report on January 29. Needham senior analyst Laura Martin described Meta shares as "priced for perfection," highlighting the market's low tolerance for any missteps.
The core issue is the company's aggressive spending on AI infrastructure, which is projected to pressure operating margins. Needham forecasts margins could fall from around 40% in 2025 to the low 30% range in 2026. For 2026, Meta forecast total expenses between $162 billion and $169 billion, with capital expenditures set at $115 billion to $135 billion—a massive increase from $72.22 billion in 2025. This comes despite Meta reporting strong Q4 revenue of $59.89 billion, up 24% year-over-year.
Alphabet's stock plunged over 7% in pre-market trading on Thursday despite beating both revenue and profit estimates for Q4 2026. The sell-off was triggered by the company's announcement that it expects 2026 capital spending to land between $175 billion and $185 billion, more than double the roughly $91 billion spent in 2025 and far above analyst expectations of $115–$120 billion.
CEO Sundar Pichai stated the bulk of this budget will go into AI infrastructure to power its Gemini models and Google Cloud. CFO Anat Ashkenazi noted about 60% of current capex already goes to servers. The scale of the spending plan was described as "stunning" by analysts, signaling a deep investment cycle that could pressure free cash flow. This announcement followed Meta's own shocking AI capex guidance just a week earlier.
Both companies are facing a critical investor narrative: the trade-off between massive, long-term AI investments and near-term profitability and cash flow. Adding to Meta's challenges are regulatory risks, notably in India where the Supreme Court may reimpose restrictions on WhatsApp's data sharing.
