AI Trade — The Rocky Period May Have Begun

The AI trade may have entered its rocky stretch. Three things happened in three days. Some of the biggest builders said their spending will keep rising into 2027, but on a flatter slope. The market started to price AI as a threat to core businesses, not only as a new source of revenue. And the software names that led since the summer were sold on the first sign of slower growth. What still rises is a short list: companies that use AI, health care, and a few early winners. In our reading that raises the risk of a sharper pullback before the year is out, while the case for the build-out itself has not broken.

The build keeps growing, but the slope is flattening

On Wednesday Microsoft cut its capital spending forecast for fiscal 2027, the year to June 2027, to $170 billion from $175 billion. Finance chief Amy Hood said outside providers of GPU capacity had delays that push some of it into the first half of 2027, and she expects spending to accelerate in that half as component costs rise. Alphabet held its guidance at $195 billion to $205 billion. Both reported quarterly capital spending below analysts' estimates, CNBC reported, and the neoclouds that rent out capacity, CoreWeave, Nebius and IREN, fell after the reports.

Oracle gave the clearest dates. At its investor day on Wednesday it said capital spending will peak in fiscal 2027 and 2028, roughly flat from one year to the next, and step down in fiscal 2029; its fiscal year ends in May. Free cash flow is to turn positive in the second half of fiscal 2028 and reach $30 billion in fiscal 2029. Oracle also capped new money from the capital markets at $20 billion through fiscal 2030, against $48 billion raised in fiscal 2026 alone. The shares rose 10.7% on the day to 144.54, gave back 3.45% on Thursday and traded at 133.65 before the open today.

Amazon is the exception. It kept its 2026 plan at about $220 billion, spent $77.3 billion in the third quarter alone, and said spending will rise meaningfully in 2027. It expects AWS to grow more than 40% in both 2027 and 2028. The market sold that as well: Amazon traded at 226.70 before the open, 7.0% under Thursday's close of 243.79.

Satya Nadella added a line the neoclouds did not need. On Microsoft's call, speaking of growth that comes from a handful of very large capacity buyers, he said "that's not a business as far as I'm concerned." He named no one. Since 30 June CoreWeave has fallen 39.0%, Nebius 37.7% and IREN 42.6%, and our Rubin build-out index is 26.4% below its 22 June level. Slower growth in spending is not falling spending: as a group, hyperscaler capex is still expected to top $1 trillion next year. What changes is the slope, and markets price the slope.