Jefferies' Christopher Wood warns Microsoft, Meta, and Alphabet AI spending may backfire

Amid the seesaw market frenzy over artificial intelligence, Jefferies' Global Head of Equity Strategy, Chris Wood, cautioned that the stock market may soon begin to push back against the significant spending by Wall Street's hyperscalers, which he predicts will be "massive capital destruction".

In his latest 'Greed & Fear' report, Wood highlighted that the four major US hyperscalers, including Microsoft, Facebook-parent Meta, Amazon and Google-parent Alphabet, have issued bonds worth $144 billion so far this year, compared with $83 billion in the entire 2025. The shares of these four hyperscalers, meanwhile, have rallied up to 180% since the beginning of 2023, outperforming the S&P 500 index by 44%.

'Malinvestment' by hyperscalers

Wood noted that the shares of these hyperscalers have, however, declined nearly 9% since late May and have underperformed the S&P 500 index by more than 10% from the relative high in early May. He highlighted that the cycle of AI frenzy is most likely to end not because the hyperscalers suddenly rein in their spending but because markets start to push back against that spending. “And that spending is not just cash but also, increasingly, borrowed money,” he added.

“Meanwhile, Greed & Fear’s longstanding prediction is massive capital destruction, or what Austrian economists like to call “malinvestment”, for the hyperscalers, or at least for most of them,” Wood said in the note.


Notably, more than $2 trillion was wiped off the total market value of the ‘Magnificent 7’ stocks last month as investors weighed the increasing spending of these tech giants on AI infrastructure, raising worries over a possible AI bubble.

Also read: No longer magnificent? How Apple, Microsoft and other Mag 7 stocks are crumbling under AI pressure

Scary implications of Ukraine war developments

The Jefferies analyst noted that the past quarter ended with investors questioning the durability of the Iran-US interim peace agreement, with remarkably little attention being paid to what is happening in the Ukraine conflict. "It is increasingly clear that it is not just Ukraine which is at war with Russia but also NATO. The implications of this are rather scary to Greed & Fear. But markets do not care for now. All Greed & Fear can say is that it still makes sense to own some energy stocks as a hedge, and that at some point, geopolitics will matter for investors," he further said.

Earlier in June, Wood warned that the AI trade will eventually be broken not by a sudden collapse in demand for chips but by market-wide realisation that hyperscalers and leading AI labs cannot earn an adequate return on the vast capex they are undertaking. He sees concerns over “malinvestment” as the specific risk that will finally trigger the end, or at least a painful pause, in the AI boom.

Also read: Chris Wood’s big warning! The specific risk that will finally trigger the end of AI trade

Wood has joined a long list of analysts sounding the alarm over possible overspending by the hyperscalers. Michael Burry, popular for correctly predicting the market crash of 2008, has been warning against the rising debt levels as a result of the massive spending.

Earlier this year, Burry wrote in a Substack post that he sees many indicators, both technical and fundamental, lining up for the same conclusion as the dot-com crash. "1999 went where no market had gone before, and I would say so can this one...It is already there on several indicators," he said, arguing that massive venture capital flows, rising AI debt issuance, and extreme market optimism are creating conditions where valuations may detach from economic reality.

Burry recently announced that he has placed bets against Tesla, Caterpillar, Nvidia, Applied Materials and more, in what marks his latest series of bearish bets. He also bet against Palantir and other companies.

Also read: AI bubble or boom? Why Warren Buffett called Big Short fame Michael Burry ‘Cassandra’

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)