A sharp selloff in tech stocks on Thursday underscored investor fatigue with the “spend now, profit later” model that has driven the AI ​​market bull for three years. Microsoft led the retreat, with its shares plunging 12% by midday, wiping out more than $440 billion in market value, a collapse not seen since the pandemic. the Nasdaq down almost 2% at the time of writing.

The immediate catalyst, it seems, is an intensified focus on capex, or capital spending. Microsoft revealed Its spending rose 66% to $37.5 billion in the latest quarter, even as growth in its Azure cloud business cooled slightly. More concerning to analysts, however, is a new revelation that approximately 45% of the company’s $625 billion in residual performance obligations (RPO) — a key measure of future cloud contracts — is directly tied to OpenAI, the company later revealed. income reporting Wednesday afternoon. (Microsoft is a major investor and a provider of cloud-computing services in OpenAI.)

“It’s the collapse of software and the rise of hardware, and it’s shocking,” CNBC’s Jim Cramer THE audience at X on Thursday, as the market punished companies that spent billions on software infrastructure while failing to show immediate returns.

It’s an “awful” statistic, Morning Brew co-founder Austin Rief said WRITES of X, especially coupled with the fact that Meta plans to spend most of their free cash flow on capex. Meta avoided the selloff on a stronger-than-expected revenue forecast, showing a healthy 24% year-over-year increase in revenue, driven by online ads. The fact that Wall Street allowed Meta to get away with their huge capex also indicates the reason why investors are selling: They don’t trust OpenAI to bring in this income on their own without huge infusions of outside money.

The shift in sentiment isn’t limited to Redmond. Oracle saw its shares halved from their September highs, wiping out nearly $463 billion in value. Once a darling of the AI ​​trade, Oracle has also struggled with investor confidence that the massive data centers it is building for OpenAI will eventually be funded. In addition, the timeline for many projects has reportedly fallen to 2028, creating a gap between the heavy expenditure financed by the company’s debt and the arrival of actual income.

OpenAI made about $1.4 trillion in commitments to purchase the energy and computing it needs to fuel its operations. But its revenue will hardly exceed $20 billion by 2025.

Investors are increasingly critical of what they describe as “circular” deals involving the industry’s biggest players. On Wednesday night, Reported on Information that OpenAI is seeking a new $60 billion in funding from heavyweights such as Nvidia and Amazon. However, the market reaction suggests that more capital will no longer be a viable substitute for a business model. “Maybe Oracle stock is ahead of the fundamentals, and now the market is saying, ‘Okay, show me, I want to see it,'” Eric Diton, president of Wealth Alliance, SPOKE Yahoo Finance.