The S&P 500 could face a big drop this week if Microsoft, Amazon, and Meta report huge AI spending that shows no signs of slowing down. This is because these companies have a massive influence on the index. The US stock market has become heavily dependent on artificial intelligence companies. Investing in the S&P 500 today is increasingly like investing in AI because a small group of tech companies now dominates the index.
AI market risk
Just 10 stocks now make up a record 38% of the S&P 500. This is much higher than the previous peak of 27% during the dot-com boom, showing how concentrated the market has become, according to Yahoo Finance. This high concentration has increased risks for investors. If one or two of these large companies disappoint the market, the entire S&P 500 could fall sharply because they carry so much weight.
Evercore ISI strategist Julian Emanuel warned about this growing risk, saying, “Risks have risen significantly with rising index concentration as outsized gains have accrued to only a handful of names”, as quoted by Yahoo Finance. Investors recently reacted negatively to Alphabet’s latest earnings because of its rising AI spending. That has made the market more sensitive to AI investment plans from other tech giants.
Alphabet AI spending
Alphabet reported second-quarter capital expenditures (capex) of $44.9 billion. This was slightly higher than Wall Street’s estimate of $44.7 billion. Alphabet also increased its full-year capex forecast. The company now expects to spend between $195 billion and $205 billion, up from its earlier guidance of $180 billion to $190 billion.
Also read: Sam Altman warns against ‘very bad’ AI monopolies as Satya Nadella makes big statement
Alphabet executives also said AI spending will rise significantly again in 2027. This suggests the company plans to keep investing heavily in AI infrastructure for years. Investors were not pleased with Alphabet’s spending plans. The company’s shares have fallen 9% over the last five trading sessions. Alphabet’s stock also closed below its important 200-day moving average last week. This is often viewed by investors as a sign of weakening market momentum.
China AI challenge
Many investors are now questioning whether the AI spending boom is starting to slow down. They are becoming more cautious about companies spending billions without clear returns, according to Yahoo Finance. Competition from China is adding to those concerns. China’s Moonshot AI recently introduced its low-cost Kimi K3 model, which is being compared with the impact DeepSeek had when it launched in early 2025.
These cheaper Chinese AI models are raising doubts about whether US technology companies are spending too much money on AI. Investors are wondering if all the massive investments are really necessary. Barclays strategists highlighted this changing mood, saying, “AI capex enthusiasm is beginning to cool”, as quoted by Yahoo Finance. Despite these concerns, Microsoft, Meta, and Amazon are still expected to report very large increases in AI-related capital spending for the second quarter.
Earnings market test
All three companies are also expected to give strong guidance for future AI investments. This means they are likely to signal that spending will remain high in the coming quarters. The biggest question is how investors will react. After Alphabet’s stock decline, the market may no longer welcome announcements of rapidly rising AI spending.
If investors react negatively to Microsoft, Meta, and Amazon’s earnings, the S&P 500 could come under heavy pressure. Since these companies are among the index’s biggest components, their stock movements can drag down the broader market. If that happens, investors may move their money away from large AI technology stocks and into other sectors. Yahoo Finance says sectors like healthcare and financials could benefit if investors rotate out of expensive AI names.