Big Tech’s $650 Billion Bet on AI

0:04Big tech is spending big money, but is it going to pay off? Motley Fool Money starts now.

0:25Everybody needs money. That's why they call it money. The best things in life are free. But you can give them to the birds and bees. From Fool Global Headquarters, this is Motley Fool Money. Welcome to Motley Fool Money. I'm Travis Hoyam, joined today by Lou Whiteman and John Quast. And guys, big tech took center stage this week, and the conversation was all about capital expenditures between Meta, Microsoft, Alphabet, and Amazon. We got guidance for about$650 billion in CapEx for 2026. A year ago, these companies weren't spending enough. Now the market is saying, whoa, whoa, whoa, we're going to spend this much?

1:08We're going to spend all of your operating cash flow? Lou, what do we take from this week? Because it seems like the numbers were so big that even the most bullish AI investors were shocked at how much money these companies are spending. Yeah, let's double down on just how big that is. Let's get some perspective here. That's$650, all right? Bloomberg says the largest U.S. automakers, construction manufacturers, railroads, aerospace companies, transports and energy companies, 21 companies in all, they are going to spend a combined$200 billion. So, less than a third of that in 2026. For 21 companies, it's also, ironically,$650 is about the combined loss of market cap by these big four post-earnings when they've announced this.

1:54Look, so here's the thing. How do we think about AI? I am not going to dispute the potential. I am not sure about the timeframe, and I am scared about the economics. All three things are true. So, I think there, yes, is a potential for payoff, but what will that payoff be and how long will it take? I think that's what the market's worried about. Also, you also have an opportunity cost here. $650 billion is a lot of money. Whether or not it's just all dividends buyback or inventing the next Waymo, something is not happening because of all of this capex spending. So it darn well better payoff. And I think that's just really the question the market is asking is, will it actually pay off?

2:38I want to come back to the payoff for the hyperscalers. But John, the first thing that I want to talk is this rising tide seems to be lifting a number of similar boats, if you will, in the supply chain. And that is, look, if these companies are spending a ton of money, there is only a handful of companies they're going to be spending it with. So their revenue is obviously going to go up. Their margins are going to be good. And that's really helping a lot of those companies, at least short term. So are these semiconductor companies like NVIDIA, the ASMLs of the world, Micron, are these still going to be the winners, at least for the foreseeable future?

3:13Yeah, I love the question, Travis. The definite answer is it's going to pay off for somebody. The question is who. But one thing that we can say for sure is we know that there is a lot of money going out from the hyperscalers. And some of them have even given us some pretty good details on exactly where the money's going. Alphabet, for example, spending about 60 % of its CapEx on servers. So if you look at 2026, it's going to spend over$100 billion on servers. So let's think that through. One of the leaders in the space is Dell. I know we don't talk about Dell very much, but it's a leader in servers.

3:53And you look at this stock right now, trading at only 10 times its forward earnings. I wouldn't be surprised if Dell had a bumper year this year in 2026 with all the spending that these hyperscalers will put out on servers. Lou, the other thing that seems to be coming into focus, at least in the market's mind, is that the disruption that we thought we were seeing coming six months to a year ago, particularly from OpenAI, We had that huge RPO number that came out from Oracle, I think$1.5 trillion in infrastructure to help OpenAI build out their ecosystem. Now that's getting flooded by these other companies that have the cash to keep investing.

4:36Are these big hyperscalers, the big tech companies that I mentioned, are they just trying to bludgeon these startups that could have potentially been the disruption to their business model? think Google in particular, but even companies like Amazon. I mean, if people go to ChatGPT to shop, that's bad for Amazon. If they're shopping at ChatGPT, they're not, the companies aren't spending as much money on meta ads. So they all have an incentive to not be, not disrupt the status quo. So is this money just basically saying, hey, look, you're not going to disrupt us or replace us by having better AI than we do?

5:12I don't know if it's a, they're out to get open AI or they're trying to bludgeon them. I think Sam Altman's made enough comments out there that maybe that's part of it. But I think, look, if this is the cost of doing business, if this is what it takes to win this game, it's really hard for a company that doesn't have that revenue base to win that game. So, definitely, whether or not it's that this is just what they have to spend, or if it's they're trying to bully upstarts out of the market, I don't think that matters. I think Either way, it's bad news for these companies that don't have the revenue base.

5:49Look, you can pivot here. I still wonder about commoditization with the models, and I still wonder if the real value won't be like what you can do with someone's model, whether or not it's your own or not. I don't know. OpenAI might be too far down the road to really pivot there. Maybe not. And I think that that's where the opportunity is below the hyperscalers. It's, okay, if this AI is being developed and if it's as half as good as, you know, we hope it is, what tools can you make with it and what value can you layer on? That, I think, is the real opportunity in 2026, even more so than these just throwing tons of money at it and hoping there's a payoff down the line.

6:30John, the other piece is we got some pretty amazing information about how much these hyperscalers cloud businesses are growing. I mean, the one that really stood out to me was Google Cloud GCP grew 48 % and had a 30 % operating margin. So it's almost like you have to hold multiple things in your head. Oh my gosh, these numbers that they're putting out are incredible. The fact that Google Alphabet is going to spend$180 billion on capital expenditures. But also, they have this business, which is serving third parties, that's growing at 48 % and an incredibly high margin. So is this an area where they're all sort of doing the rational thing by going, all right, we're going to go all in.

7:12And the worst thing that can happen to us as a hyperscale, as a huge company is, you know what, in 2027, we'll pull back. We won't spend$180 billion. We'll just spend$100 billion on CapEx. Yeah, it's a great point, Travis. The margins in all of these businesses are extraordinary. And so it does make perfect sense to double down. What is so hard to parse out though, is because those margins are so high, all of them have an incentive in some way to compete better when it comes to those things. So I mean, circling back to - So the margin could potentially get competed away over time. Exactly. It's the famous line from Jeff Bezos, your margin is my opportunity.

7:57If we circle back to NVIDIA, the operating margin right now is around 60%. It was 20 % several years ago, which is also quite good for an operating margin, three times that now. And so if you think about this, all of the other technology companies, they would love to take away some of this revenue opportunity from NVIDIA with their own products. You look at Alphabet creating the TPUs. You see all of these companies and as well with the clouds as well, that NVIDIA has incentive to not have all of its eggs in just the hyperscalers clouds. It wants the Neo clouds to succeed as well. And so you do see it investing in the Neo cloud so that the Neo clouds can buy its GPUs.

8:42So there's a lot of competition here. It's kind of a stalemate. You don't want to expressly be out competing with your biggest customers. But at the same time, there are margin opportunities here. All right, let's get to the big question that I think we're all asking. And that's the bubble question, the overspending question. Lou, I've always heard about bubbles being talked about as, you know what, it's not really a bubble until we start adding debt to the equation. It's not really a bubble until no one thinks it's a bubble. It seems like we're there now. Not only are the hyperscalers now adding debt, you have companies like the NeoClouds that have a ton of debt.

9:22You have Oracle, which is now it has over$100 billion worth of debt. They were supposed to be one of the winners of the OpenAI build out. So there's that debt, there's that leverage there. There's also, you know, plenty of people who don't think this is a bubble. I think there's a lot of people right now with this amount of spending, hey, these companies are going to keep growing their spending. How can this possibly be a bubble? Is that a concern? Concern? Sure. I'll note that I I don't remember from my Econ 101 class ever getting a real definition of a bubble. Bubbles tend to be clear in hindsight, right?

9:54That's true. Whether or not this is a bubble really comes down to what they do with all of this stuff they're buying and building. And that is really, really hard to know. I think the market reaction this week was sort of acknowledging that risk of the uncertainty. None of us know how this all plays out. Could it be a bubble? Yeah. But here, one thing I do want to say, because I've heard a lot about the big macro and what's going to happen here. This may be a hot take, people. This isn't what I'm hearing when I turn on the TV right now. But look, this is, without doubt, bullish for the big macro, for the broader economy, at least in the near term.

10:36Because John mentioned Dell. We have NVIDIA. We have construction companies. We have HVAC companies. all of this economic activity, all of that$600 billion is real money that's going to be spent. That can keep an economy that's weak elsewhere going. There could be a price to pay eventually. I don't want to be too Pollyanna, but in the near term, if they are going to spend what they're going to spend, that has to be good for the chances of an up year of the economy continuing one, at least in the near term. If these companies are overspending right now, I'm not sure what they can do about it at this point.

11:15It's kind of the sunk cost fallacy, if you will. They've spent so much already and everyone else is still spending. So we got to keep spending too, right? It's like a who blinks first kind of a scenario. Exactly. And especially considering that they have money coming out of their ears. We're talked about the profit margins. They do have money and they do have ability to raise more. And if your competitors are still spending, you kind of got to keep spending yourself. Well, it's going to be fascinating to see how this plays out because the numbers, you know, even to those of us who follow this on a day-to-day basis, I think, are shocking at this point.

11:49When we come back, we're going to talk about some of the downstream impacts of AI and that's causing a SaaS-pocalypse. You're listening to Motley Fool Money.

12:30Welcome back to Motley Fool Money. If you have followed the market at all over the past week or two, you can see that SaaS stocks have been absolutely hammered in 2026, and the selling seems to be getting worse by the day. The theory seems to be that AI is going to do everything that software companies do today. But my big question is, John, if the software companies aren't going to be valuable, aren't going to be making money, who pays for all the AI? It seems like there's a lot of different narratives going on here. So what's the real story? That's a good question. What is the real story? Look, we are talking about the software stocks selling off.

13:08I don't know if that shoe quite fits. Because you look, yes, there are some software stocks that are down and down by a lot. But there are some other ones that are down as well, such as quantum computing stocks. Look at IonQ and Rigetti, both of those down more than 30 % here to start 2026. You got Rocket Lab, which is a space company, down over 30 % from its high. I think we're seeing a sell-off in high valuation stocks more than anything, I think, if we think about it more broadly. And that has often included software stocks, yes. But I think that people are starting to question, we thought that the software stocks were worth a high valuation in the past.

13:47Are they in the age of AI? Because in the reality, the software businesses aren't necessarily seeing this all of a sudden, they have no business right now. The question is, what is that business going to look like in three to five years? And what is that stock worth today? Those are kind of the questions being asked. Yeah, to John's point, it does feel like that this week we've had an excuse to acknowledge some of what we should have been worried about the whole time, right? And that's the weird thing about market psychology. There's very rarely a real shock, like, you know, Liberation Day or something.

14:25Normally, it's just we suddenly care more about information we already had than we did yesterday. And it feels like it doesn't matter until it does. It does feel like there's an element of that just to the stock market this week. That said, I think I get the reason for the SaaS sell-off. And I do think that, look, John, yes, everything's down. But some of these were down a lot more than the broader market. It feels like AI implementation, you know, I don't know if it's going to be the imaginary friend on everyone's shoulder. I do think it's going to be a lot of processes that right now we use software for just kind of taken more customizable or a better option.

15:07I keep using the analogy of almost like what Microsoft Word did to the typewriter. It's just better tools for the job, incremental progress. A lot of these one-trick enterprise software, I think they are vulnerable. So you're saying the companies that are built on a feature and not necessarily a platform, they're the ones that are going to be potentially in trouble? Yeah, yeah. I mean, I know just kind of seeing companies implement it that, you know, a lot of times, like, look, you get on Amazon Cloud and they have 15 partnerships that kind of give you versions of stuff that you're currently paying for as part of your package.

15:45And the stat that I heard this week, I don't know if you guys heard this, but the average large company has over 400 different SaaS applications that they're paying for on an ongoing basis. And every one of them, I'm sure, answers some sort of question. The question is, if there's, you know, let's say 200 of them or 300 of them are a feature, you know, it's a payroll feature. And now that can just be rolled into this bigger thing that AI can answer. Maybe those don't need to be paid anymore. And Travis, I'll take it a step further. How many of them, you say they all have a reason, but how many of them have just built up over time?

16:20And if you are overhauling your IT because there is a new tech wave, how many of them just disappear when you realize, wait, we're still paying for that? Almost like the stupid subscriptions that they always talk about on the consumer bill. I think there's even a risk here. There's another side to this, though, too. I do think, like, in times of disruption, it's good to look at who might the beneficiaries be. I find it hard to believe that in this new AI world, that maybe it is just your in-house IT can handle all this, but it feels like not everyone is going to have an AI guru that steps in. Not every Joe's trucking company is going to have an AI guru.

16:58I do think that if we don't maybe necessarily need some of these SaaS companies, maybe it is an opportunity for, I don't know, Accenture, even some of like maybe Salesforce or ServiceNow, like the kind of the companies that can package the AI or figure out how to use the AI and be a one-stop shop instead of those 400 different vendors. I do think there is an opportunity for some companies here. I'm not sure exactly what that looks at, but that's sort of what I'm watching from here because I sort of, I don't want to buy the dip on this sell-off. I don't know if it's just kind of the market of reacting.

17:37I do think that there is a there there or a risk there for some of these platforms being just made irrelevant. John, I know you like to find a good value stock, stocks that are trading for very low price earnings multiples or price of book values. where are you kind of trying to bottom fish and trying to figure out whether you're catching a falling knife or getting a great deal? It is such a weird market, isn't it? Because on one hand, the S &P 500 is still pretty close to an all-time high. It's within a few percentage points. And on the other hand, I am seeing some really quality opportunities.

18:13And I haven't seen really this many when the market is at a high in quite some time. And I'm with Lou here. There are some software stocks that I wouldn't touch right now, not because I'm certain they're doomed, but just because I'm unsure of what the future holds for them. But you look at a stock, I highlighted it yesterday on the podcast, GoDaddy, ticker symbol GDDY. It's growing, its profit margins are expanding, yet shares are down 50 % in the last year, and it now trades at nine times forward earnings. That's intriguing to me. Or take a shift for payments. And I know that payment stocks aren't really popular right now, but it's still growing the top line more than 20 % and trades at eight times forward earnings.

18:52So I can't remember a time that I could look at the market so close to all time highs and then find these high growth, cheap, profitable companies throughout the market. Yeah, it's it is fascinating to sort of look and go, wait, these this company that I've wanted to buy, but thought it was really expensive is now really cheap. What am I missing? And oftentimes that's when the values or when the great buys can come out is when you feel crazy buying something that everyone else is selling. But it's hard to know what's real and what's not in this market. When we come back, we're going to play in a little Olympics game.

19:28Give gold, silver, and bronze out. You're listening to Motley Fool Money.

19:40Hi, I'm Neil. And I'm Ken. And we are from the Triviality Podcast, a pub trivia style game show where a lack of seriousness meets a little bit of knowledge. Join us each week for an hour-long game of general knowledge trivia featuring special guests from around the world, plus tons of extra themed episodes. If you want to improve your trivia game, or you just want to scream at us in your car when we get easy questions wrong, then we're the show for you. Find triviality on all your favorite podcast apps. But you know that, because you're already listening to a podcast.

20:18Welcome back to Motley Fool Money. In honor of the Olympics starting today, we're going to give out some gold, silver, and bronze to some categories that I think will be fun to talk about. Big tech CEOs, restaurant stocks, and potential IPOs for 2026. So, John, I'm going to have you go first here. I gave you a list of big tech CEOs. I want you to hand out bronze, silver, and gold to Andy Jassy, Sundar Pichai of Alphabet, Satya Nadella at Microsoft, Jensen Wong at NVIDIA, or Mark Zuckerberg at Meta. Who do you have at the top of your list? I'm going to put Sundar Pichai at the top of my list. He gets my gold medal here.

20:58He has been at Alphabet for 10 years now. And during his tenure, earnings per share are up over 800%. This was already a large company 10 years ago. To see earnings per share go up another 800 % during his tenure is phenomenal to me. You look at also what he's done in the age of AI, starting falling flat on their faces out of the gate with Bard, if you remember. Yeah, Bard. That was when people were calling for his head. They wanted him fired as CEO. And I think that's another reason he gets gold here, because he was taking a lot of heat for his leadership during that time, and yet kind of cool, level-headed, stayed the course, Gemini has been a completely different story and Alphabet is firing on all cylinders right now.

21:47Lou, who do you have at the top of the list? I'm going, look, I'm a long-term focus investor, so I'm going to go with slow and steady wins the race and that's Satya Nadella. It's hard to think of a company more just exposed to all of the things you want to be exposed to. I know he didn't build that foundation, but if you think about the chaos that was there when he got there and what he's been able to do with it and just slowly perform. Travis, I said it the other day on a different show with you. There isn't a management team in big tech that I would trade with Microsoft. And there are some really, really good names on this list.

22:22But Nadella, just the way he captains this massive ship with so many tentacles and so many different things and the way it just keeps going. And that to me is what I want in the CEO. All right, Lou, let's round yours out first. Who is the silver and who is the bronze? Jensen Huang has to be the silver and how he's not the gold just speaks to how good of a group this is. I mean, look, how many times have they, I mean, it's one thing to hit the lottery once, but Nvidia has a history of always being there when a trend happens. Maybe that's true. You talk about Ethereum. Ethereum was something that was a huge boon for Nvidia.

23:03We don't, We don't remember that, but that was kind of a boom and bust. And then right behind AI. Gaming, AI, autonomous. Look, maybe if you do that once, you're lucky. If you do it more than once, you either have a crystal ball or you're really good at allocating capital to future-proof your business. I don't know how you can go wrong with what NVIDIA has done. You know, and that's that, and I can only give them silver. For bronze, I'm going to go with Pachai because I do really respect everything John said about what's going on in Alphabet. A lot of what I said about Microsoft, you can also apply to Alphabet.

23:37I really love the job they're doing. There are some great management teams in big tech. Maybe it's because that's where the money is. So that's where the smart people go. But you can do a lot worse than this list. John, who's silver and bronze for you? Yeah, me and Lou agree with the silver medal and that's Jensen Huang for me as well. And for all the reasons that Lou said, he does have a very good ability to see where things are going in the world. I'd say he does a really good job of communicating that to his shareholders and his team as well. So definitely he has to make the podium, right? As the world's most valuable company.

24:12Yeah. I would give the bronze to Mark Zuckerberg. And I know that some people will push back on that specifically because of the fact that it seems like he's a one hit wonder with Facebook, but I'm going to push back on that a little bit. He's acquired a lot of the growth, Both some of the investments that he's made in things like the metaverse and even artificial intelligence tools and hardware hasn't hasn't really paid off. Exactly. And I think that he has taken some big swings that where he's lost some credibility as far as from the investor community. But I'm going to push back and say, I think that Ray Bans and what they're doing in augmented reality.

24:50I don't think that it's the final chapter. I think we're in the early chapters of that book and exactly how that plays out for meta. will be very interesting to watch. And I think that it's really interesting how he has led that initiative forward. When you hear us talking about John wearing Ray-Ban AR glasses, that's when you know things have really turned the corner. I don't think we're quite yet there, are we, John? No, pigs are not flying. Zuck reminds me in this group of, who was that Turkish shooter in the Olympics that just didn't look like any of the other shooters and just kind of sat up there.