Why Stocks May Keep Climbing Even as AI Spending Cools

Big Tech’s massive investments in artificial intelligence drove stocks to repeated records last year, but analysts say continued gains in 2026 may not require another surge in spending. U.S. hyperscalers Microsoft, Alphabet, Amazon, Meta, and Oracle are projected to invest over $500 billion in infrastructure this year, pushing tech capital expenditures to levels seen at the peaks of past cycles like the PC boom, Dotcom era, and post‑pandemic “Zoom boom.”

Historically, tech stocks began to lag about a year before capex cycles peaked. If this cycle follows that pattern, AI‑focused stocks could be at risk. However, BCA Research strategist Dhaval Joshi argues today’s environment resembles the “Zoom boom” more than the Dotcom Bubble, thanks to supportive interest rate policy. Even if AI spending slows, an ultra‑accommodative Federal Reserve could extend the rally, cushioning markets against a sharp downturn.

Why This Matters

Artificial intelligence investment has been a major driver of stock market gains in recent years. As spending cools, investors worry about whether tech stocks can sustain their momentum. Those concerns already contributed to volatility in late 2025, when tech shares wavered amid fears of an AI capex slowdown.

The trajectory of AI spending now represents more than just a sector trend it’s a signal for broader market confidence. If investment slows, the Federal Reserve’s interest‑rate policy and overall economic conditions will play a critical role in determining whether stocks continue to climb or face sharper corrections.

Analysis

Dhaval Joshi of BCA Research highlights that real bond yields returns adjusted for inflation are the key driver of stock valuations, not nominal yields. In 2021, tech stocks held up because real yields declined even as inflation rose, but they lost market leadership once Fed rate hikes pushed real yields higher in 2022.

Today, the Fed is signaling rate cuts rather than hikes. If inflation holds near 3% while rates fall, real yields could decline again, bolstering tech stock valuations. However, there’s no guarantee of an “ultra‑accommodative” Fed stance. Persistent inflation, a stabilizing labor market, or strong economic growth could limit policymakers’ willingness to heed President Trump’s calls for aggressive cuts. Following a mixed jobs report, the odds of no rate cuts in the first half of 2026 climbed to a one‑month high.

Wall Street analysts remain broadly optimistic about the stock market’s outlook, with expectations of healthy earnings growth driving solid returns. Yet the sustainability of the AI‑driven rally is a top concern after tech mega caps stumbled late last year. Their outsized share of the S&P 500 leaves the index more vulnerable to a downturn in tech stocks.

Supportive factors could cushion the market: lower interest rates may boost liquidity, while tax cuts from last year’s One Bi Beautiful Bill are expected to fuel economic growth. Together, these forces could help offset weakness in tech and sustain broader market momentum.

Even if AI infrastructure spending slows, the stock market rally doesn’t necessarily have to stall. Wall Street analysts point to two stabilizers: the Federal Reserve’s potential rate cuts, which lower real yields and support valuations, and fiscal tailwinds like tax cuts that boost liquidity and growth. Together, these forces could offset weakness in tech mega caps and keep broader indexes climbing, though risks remain if inflation proves sticky or Fed policy shifts unexpectedly.