Tech stock sell-off tests AI hype, but infrastructure investment cycle will go on
Investors are increasingly demanding clearer evidence that companies can turn heavy spending into profits.
Technology stocks rebounded from their worst monthly performance in years in July, but analysts believe investors are no longer betting on a continued rally. Institutional investors, including top US hedge funds, unwound their exposure to tech stocks at an unprecedented pace, leading to a 3.2% decline and the Nasdaq's worst July performance in 20 years.
The index was down 10% from its June peak, meeting the definition of a correction. Analysts warn that more volatility is possible, but the AI infrastructure build-up story may not be over. In 2026, AI infrastructure spending by top cloud service providers is expected to surge by about 90% from 2025 to $886.7 billion (S$1.14 trillion).
Morgan Stanley sees the underlying earnings and AI infrastructure story surviving the unwind, with quality replacing pure momentum. The widening credit spread indicates that only companies with business models balancing earnings growth, sales, and spending will continue investing in new infrastructure. The stock market response to US tech giants' recent results highlights the shift in how hyperscalers frame the economics of AI infrastructure, focusing on land, buildings, power, and cooling systems that can support multiple server cycles and potentially stronger margins.
Written by urgent.news from Straits Times Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.