Why investors are dumping tech stocks, in one image

Tech stocks aren't getting shredded for any old reason. It's actually very fundamental: Free cash flow is drying up for Big Tech leaders, and capex is rising dramatically.

Investors are questioning whether this ratio is totally out of whack, given more realistic growth projections for AI.

The combined capex of Amazon, Alphabet, Meta and Microsoft rose by $36.9 billion in the third quarter to $201.9 billion, the team at The Kobeissi Letter calculated (chart below). This figure has more than doubled over the past 12 months, and is up a staggering 356% since the first quarter of 2024.

Big Tech has now spent $1.6 trillion on capex over the last three years, the strategists say. At the same time, the combined free cash flow of these companies fell $33.1 billion last quarter to a negative $26.4 billion, its lowest on record. Free cash flow among these tech beasts has fallen by $88.2 billion over the last year. Only Microsoft reported positive free cash flow in the third quarter. Looking ahead, the strategists estimate these four companies plan to spend another $232 billion on capex in the fourth quarter.

The AI trade saw a serious slamming on Friday, with more than $1 trillion in market value wiped away as investors fretted about the weakening cash flow profiles of Big Tech.

"The AI narrative is cracking as profitability concerns intensify," warned Miller Tabak chief markets strategist Matt Maley.

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