Big Tech May Get Only Half the Profits It Needs to Justify AI Investments, Goldman Warns

“The 10 largest stocks in the S&P 500 represent 41% of market capitalization and generated 53% of the S&P 500’s return in 2025. We expect AI spending to exceed consensus estimates this year, but to begin to slow in growth as corporate adoption increases, causing rotations among the largest U.S. tech stocks that create two-way risk for the overall index,” he told his customers.

Capital expenditures of large hyperscalers (Meta, Amazon, Alphabetetc.) amounted to around $400 billion in 2025, up 70% per year, Goldman calculates. Big tech companies have also started financing much of this growth with debt.

“As expenses and debt increase, so do the potential profits needed to justify ongoing investments,” says Snider.

So far, tech companies have been happy to spend this money because the profits they generated were two or three times what they invested, Goldman estimates. The problem is that it might not be sustainable, Snider says. “Given consensus estimates of an annual average of $500 billion in investments between 2025 and 2027, maintaining the capital returns to which their investors have become accustomed would require these companies to earn an annual profit of more than $1 trillion, more than double the 2026 consensus estimate of $450 billion in revenues,” he wrote.

While some of these companies will manage to generate the profits they need, others will not, he says. “The scale of current spending and market capitalizations as well as increasing competition within the group suggest a decreasing likelihood that all of today’s market leaders will generate enough long-term profits to sufficiently reward today’s investors.”

Analysts at Avant-garde And Piper Sandler also focus on the history of AI investment and investment profits.

Nancy R. Lazar, Piper’s chief global economist, and her colleagues predict that technology companies have not yet reached the ceiling on their capital budgets, especially as the One Big Beautiful Bill Act (OBBA) provides new tax breaks on corporate capital spending. “Tech investments have been a huge story for a while now, but contrary to history, they’re still not ‘too high’ relative to GDP. And there’s plenty of upside potential ahead, given the full scope of OBBA capex spending, Fed easing, and banks easing lending standards,” they told clients.

Vanguard’s Qian Wang, global head of financial markets research, also warned that if profits don’t keep up with investments, investors should expect a slowdown. “We are optimistic about the potential of AI to transform the economy. But to succeed, transformative technologies need profitable business models. And, in financial markets, returns depend on expectations. Earnings of technology companies have been strong so far, but their valuations may have been ahead of themselves. When expectations become too derailed, it is not surprising to see markets pull back,” she said in an email to Fortune.

Here’s a look at the markets before the open in New York this morning:

• S&P 500 Futures Contracts we were flat this morning. The last session closed up 0.62% at 6,944.82, a record.
• STOXX Europe 600 was stable at the start of the session.
• United Kingdom FTSE100 was down 0.65% at the start of the session.
• from Japan Nikkei 225 was down 1.06%.
• China CSI300 was down 0.29%.
• South Korea KOSPI was up 0.57%.
• India NIFTY50 was down 0.14%
• Bitcoin fell to $91.8k.