I think there’s one clear risk facing the stock market right now. It’s that artificial intelligence (AI) spending declines from its current levels.
The top- of 2026 have been semiconductor equipment companies. But I’m starting to wonder about the early signs of a slowdown.
What’s happened?
Earlier this week, Alphabet (NASDAQ:GOOG) announced plans to raise $80bn. The reason is simple – it’s got spending commitments to meet.
The firm is planning to spend between $180bn and $190bn this year. And it’s looking to raise $80bn in cash by issuing shares.
In the grand scheme of things, this isn’t a big deal. It’s set to raise around Alphabet’s outstanding share count by around 2%.
That’s less than the amount it’s repurchased through share buybacks in the last few years. So again – nothing earth-shattering.
What is interesting, however, is that Alphabet is issuing shares, rather than taking on debt. I think that looks significant.
Debt levels
Alphabet hasn’t been afraid to borrow over the last few years. Total debt has increased from $10.9bn to $77.5bn since 2024.
Source: Fiscal.ai
The firm’s balance sheet is still pretty strong. But I think it’s significant that it’s looking to keep it that way.
Raising $80bn from investors isn’t straightforward. Alphabet has had to turn to Berkshire Hathaway for part of it.
This raises an important question. How long can the company keep raising cash to finance its data centre spending plans?
I think this could be a sign that AI spending is nearing its peak. And if I’m right, it’s probably worth paying attention to.
Big tech
It’s not just Alphabet. Amazon and Microsoft have also materially increased their debt levels in recent years to support spending.
The main beneficiaries of this have been companies involved in building data centres. And that’s been reflected in share prices.
The iShares Semiconductor ETF is up 178% over the last 12 months. That’s compared with a 29% increase for the S&P 500.
So far, nobody wants to show signs of slowing their spending. But it’s getting harder to see how the growth rates can be maintained.
That’s why I think Alphabet shifting from debt to equity is a warning sign. So what should investors do?
Warning signs?
The good news for investors is that they don’t have to do anything different. Whatever the stock market does, some things stay the same.
Investing well is about looking for companies that look undervalued. And that means cheap relative to their future cash flows.
This is what investors need to focus on. If they can get that right, what the market does in the next few months won’t matter over time.
That doesn’t mean slowing spending is irrelevant. It matters a lot when it comes to assessing semiconductor equipment stocks.
What it does mean, however, is that investors shouldn’t worry about when the next downturn comes. Instead, they should focus on the long term.
What about Alphabet?
Alphabet isn’t on my list of stocks to buy right now. I’ve got my eye on what I think are more obvious opportunities.
I don’t, however, think investors need to start worrying – at least, not yet. The company is still in a very strong position.
The firm’s AI investments, however, have implications for the wider stock market. And these are worth paying attention to.
Stephen Wright owns shares in Amazon, Berkshire Hathaway, and Microsoft.
