Jefferies flags early peak in Big Tech’s AI spending boom

Wall Street analysts are split on how much the AI spending boom has left in it after the Democratic midterm sweep set off one of the worst tech selloffs in years. Jefferies ↘ 2.51% warned the cycle may peak sooner than expected. Dan Ives of Yorkville Ives still expects Big Tech to spend more than $1 trillion in 2027, and UBS ↘ 2.03% is telling clients to spread their AI bets beyond a handful of giants.

On Thursday, November 5, the Nasdaq Composite had its deepest one-day drop in 19 months and confirmed a correction. Nvidia ↗ 2.78% fell more than 9% and the Philadelphia Semiconductor Index PHLX Semiconductor Index ↗ 3.91% plunged over 12%, according to Reuters. Investors feared that Democratic wins on November 3, including in states where opposition to data centers has grown, would slow the infrastructure buildout. Chip stocks recovered some ground on Friday.finance.yahoo.com+1

Jefferies sees early peak

Jefferies strategist Christopher Wood wrote that the investment cycle could end much earlier than anticipated, putting next year's optimistic forecasts at risk, NDTV Profit reported. That warning comes even though consensus estimates have Microsoft ↘ 0.99%, Amazon Amazon.com, Inc. ↘ 0.35%, Alphabet ↗ 0.78% and Meta ↗ 0.84% spending a combined $1.04 trillion in 2027, Business Today noted. Wood also flagged signs of strain in credit markets. Spreads on bonds from Amazon, Alphabet and Meta have widened since October, and credit default swap rates have jumped for Oracle ↗ 0.82% and CoreWeave ↗ 6.28%. He added that Amazon and Alphabet both had negative free cash flow in the September quarter.ndtvprofit.com+1

Ives trims but stays bullish

Ives now expects Big Tech's capex growth to peak in 2027 rather than in 2028 or 2029. "While Big Tech and hyperscaler capex should still easily exceed $1 trillion in 2027 the growth rate into 2028 will clearly moderate significantly," he wrote, pointing to the political map, especially in Texas, according to Fortune. He estimated that at least 10% of the 800 to 1,000 planned US AI data centers will be "wiped off the roadmap." Still, he called the rout a buying opportunity, CNBC reported, writing that the Blue Wave "does not cancel Christmas and the AI Revolution will continue to happen, just at a slower rate."fortune.com+1

UBS urges diversification

UBS strategist Matthew Carter advised investors to look beyond the largest tech names toward semiconductor makers, power and cooling suppliers, grid operators and AI adopters, Investing.com reported. He also recommended geographic diversification into Asian chip suppliers and European industrial companies. UBS still raised its aggregate AI capex forecasts to $1 trillion for 2026, $1.4 trillion for 2027 and $1.5 trillion for 2028, citing strong cloud growth. The bank favors companies with healthy balance sheets and pricing power over those that depend on borrowing. Separately, Reuters reported that UBS estimates around 30% of expected US data center capacity expansion in 2028 may face construction pauses.au.finance.yahoo.com+1