Amazon.com shares have officially entered a technical bear market following an eight-session losing streak, becoming the second member of the Magnificent Seven to succumb to such a downturn. A strong investor backlash against aggressive artificial intelligence expenditure plans by tech giants has triggered significant declines in these once high-flying stocks.
On Thursday, Amazon.com stock closed at $199.60, down 21.4% from a recent peak, formally breaching the bear market threshold. Among the four major hyperscale cloud providers, Amazon.com has the highest projected capital expenditure for 2026, reaching $200 billion. Collectively, Amazon.com, Microsoft, Meta Platforms, Inc., and Alphabet are anticipated to spend a total of $650 billion on AI-related capital expenditures in 2026.
Meta Platforms, Inc. could be the next Magnificent Seven constituent to fall into a bear market, with its stock price hovering just 2.3% above the threshold. Despite reporting fourth-quarter revenue and earnings that exceeded Wall Street forecasts, increased AI spending and margin pressures have dampened investor confidence.
Microsoft was the first Magnificent Seven member to enter a bear market. Its stock fell into bear territory on January 29, one day after the company reported Azure cloud growth that failed to meet investor expectations. As of Thursday's close, Microsoft shares were down 25.9% from a recent high.
Investors are rotating capital within the Magnificent Seven, bringing free cash flow pressures into sharp focus. Mike Treacy, Vice President of Risk at Apex Fintech Solutions, stated that the recent sell-off highlights the growing divergence among the group's members. Since last fall, investors have shifted away from exposure to the OpenAI deal associated with Microsoft, NVIDIA, and Oracle, moving instead toward the Alphabet and Broadcom ecosystems.
Treacy pointed out that Alphabet's vertically integrated technology stack somewhat alleviates concerns over excessive spending, insulating the stock from the worst of the tech sell-off. Alphabet shares closed Thursday down 9.2% from a recent peak. Treacy suggested that Google's self-sufficiency should command a premium relative to other companies that might be adversely affected by vulnerabilities in specific segments of the supply chain.
Amazon.com, Microsoft, and Meta Platforms, Inc. have faced more significant sell-offs, as investors lack confidence that these companies' AI expenditures will generate sufficient returns. For Amazon.com, the elevated level of capital spending could lead to negative free cash flow this year, implying the company may need to tap debt markets to raise additional capital.
Treacy believes the next major catalyst for AI-related trades will be NVIDIA's earnings report on February 25. This financial release will indicate whether the AI boom is losing steam or if NVIDIA is successfully capturing the billions of dollars its largest customers are pouring into the sector.