Investing.com — Investors are reassessing artificial intelligence investments as surging infrastructure spending could weigh on earnings growth and valuation multiples, even as demand for AI services remains robust, according to ING.
The long-term outlook for large technology companies remains positive, driven by growing adoption of AI services. Still, rising capital expenditure is expected to increase depreciation costs, slow earnings per share (EPS) growth and reduce the capacity for share buybacks, which have helped support equity valuations.
Technology stocks have experienced sharp swings this year. During the first half of 2026, Microsoft (NASDAQ:MSFT) fell 20% and Oracle (NYSE:ORCL) dropped 27%, while Alphabet (NASDAQ:GOOGL) gained 14%. Much of the volatility has been attributed to uncertainty over future returns on AI-related investments.
Current spending levels remain economically justified, with Microsoft investing about $65 billion in cloud and AI infrastructure in fiscal 2025 while generating annualised AI revenue of roughly $37 billion. Demand for AI computing continues to exceed available capacity, and most large technology companies can finance these investments through operating cash flow.
Rising capital expenditure is expected to reduce free cash flow and limit share repurchases, particularly at Microsoft, Alphabet and Meta Platforms (NASDAQ:META). Slower buybacks, combined with higher depreciation costs, could make investors less willing to pay premium earnings multiples if AI revenue takes longer to materialise.
Oracle (NYSE:ORCL) stands out as a higher-risk case. Its investment programme, including support for Project Stargate, could pressure cash flow and increase funding needs. Nvidia (NASDAQ:NVDA) may also face stronger competition over time as Microsoft, Alphabet and Amazon (NASDAQ:AMZN) develop their own AI chips to improve infrastructure efficiency.
Despite those risks, current AI spending is viewed as fundamentally sound. The key question for investors is whether future revenue growth, profit margins, and earnings expansion will ultimately justify today’s level of investment.
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