Stocks Could Keep Rising Even if AI Spending Slows Down. Here’s Why.

Big tech’s massive investments in artificial intelligence propelled stocks to record after record last year. They may not need another year of big spending to keep climbing in 2026.

U.S. hyperscalers—Microsoft (MSFT), Alphabet (GOOG), Amazon (AMZN), Meta (META), and Oracle (ORCL)—are expected to spend more than $500 billion on infrastructure, much of it related to AI, this year. If they do, tech capital expenditures as a percent of GDP will reach a level that marked the peak of past tech investment cycles, including the personal computing boom of the 1980s, the Dotcom boom of the 1990s, and the post-pandemic “Zoom boom,” wrote Dhaval Joshi, chief strategist at BCA Research, on Thursday.

In the 80s and 90s, tech stocks began to lag the market about a year before the capex cycle peaked. If this cycle is the same, Joshi wrote, “AI-plays in the stock market are in imminent danger.” But this cycle looks more like the Zoom boom than the Dotcom Bubble, he argues, thanks to the interest rate environment. 

“Even if the AI capex boom ends, an ultra-accommodative Fed can prolong the stock market rally,” wrote Joshi. 

“The tech sector did not slump in 2021 because, as inflation picked up, the real bond yield continued to decline,” writes Joshi, who notes that it’s this real bond yield—that is, a bond’s inflation-adjusted return—not the nominal yield, that matters for stock valuations. Tech stocks gave up market leadership in 2021, but they didn’t tumble from their post-pandemic highs until the Federal Reserve’s rate hikes began driving up real interest rates in 2022. 

“Fast forward to today, and rate hikes are not on the Fed’s agenda. Quite the contrary, the Fed is signalling more rate cuts,” wrote Joshi. If inflation sticks around 3% while the Fed cuts rates, real yields will decline and support stock valuations, he argues. 

There’s no guarantee that the Fed will be “ultra-accomodative” this year. Sticky or resurgent inflation, a stabilizing job market, or robust economic growth could prevent policymakers from heeding President Donald Trump’s calls to aggressively slash rates. After a mixed jobs report on Friday, the odds of there being no rate cuts in the first half of this year jumped to a 1-month high.

Wall Street analysts are generally optimistic about the outlook for the stock market, with most expecting healthy earnings growth to support solid returns. But the sustainability of the AI rally, which hit a rough patch late last year, is among Wall Street’s chief concerns. After years of leading the market, tech mega caps now account for an unusually large share of the S&P 500, making the index more vulnerable to a slump in tech stocks.

Lower interest rates could increase stock market liquidity while tax cuts enacted through last year’s One Bi Beautiful Bill juice economic growth, both of which could help offset a drag from sluggish tech stocks.