Forget the War Headlines: This Is the Real Reason Tech Stocks Are Struggling
Key Points
Investors are uncertain about tech companies because of AI spending, not the Iran war.
Four major hyperscalers spent $410.2 billion last year, and there's concern about whether the returns will justify that kind of investment.
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Tech stocks have been shaky lately, and the Iran war may seem like the likely explanation. Military conflicts increase uncertainty in the stock market, which can increase volatility, and tech already tends to be more volatile than other sectors.
However, the tech sector has been in a slump since before the war started on Feb. 28. The tech-heavy Nasdaq-100 index is down over 3% on the year through March 13. The real reason for the recent slowdown is a different source of uncertainty: massive capital expenditures (capex) in artificial intelligence (AI) infrastructure by hyperscalers.
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Four, in particular, are leading the charge: Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Amazon, Meta Platforms, and Microsoft. They combined for $410.2 billion in capex spending in 2025, according to recent research by The Motley Fool, and they're all projected to spend even more in 2026.
While the market was largely bullish on AI technology until late last year, investors have grown more concerned about the returns this staggering spending will generate. Compounding the issue is that components in AI data centers don't last long. The latest technology quickly becomes outdated, or components simply break down due to heavy use.
That said, the companies spending the most on AI infrastructure can afford it, as they're highly profitable. Alphabet has reported $132.2 billion in net income over the trailing 12 months (TTM) and has a strong balance sheet with $126.8 million in cash and cash equivalents at the end of 2025. Amazon, Meta, and Microsoft are all in strong financial positions, as well.
It's capex spending, and not the Iran war, that has caused investors to pull back on top tech stocks. But if you're bullish on AI and the tech sector as a whole, this is a buy-the-dip situation, not a reason to sell your holdings.
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Lyle Daly has positions in Alphabet and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool has a disclosure policy.
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