A year ago, the market rewarded the big technology names for every dollar they spent on artificial intelligence. Last week it did the opposite to the biggest spender of them all. Regal Partners’ Charlie Aitken says that reversal is the signal ASX investors should be reading, and it cuts two ways.
A year ago, investors cheered the big technology companies for every dollar they poured into artificial intelligence. Last week, the biggest spender of the lot, Alphabet, reported a record quarter and the market sold the stock anyway.
So what changed?
Alphabet’s revenue rose 24% to US$119.8 billion and its cloud business kept growing at pace, but free cash flow came in at negative US$5.9 billion, the first negative quarter since the company floated in 2004. The cause was capital expenditure, which doubled to US$44.9 billion in three months, with full-year guidance lifted to around US$200 billion and flagged to rise again in 2027. The shares fell about 7% the next day.
A year ago, Aitken told the Switzer Show, a quarter like that would have sent the stock up. “The share market eventually prices your shares off sustainable free cash flow,” he told the Switzer Show, and for the first time the spending is running ahead of the cash the business throws off.
It is not only the equity market sending the message. Yields on hyperscaler bonds widened this week as Alphabet lifted its capex plans, and Amazon had to offer extra yield to get a US$25 billion bond sale away. “The bond market’s kind of saying, slow it down a bit, lads,” Aitken said. Tesla fell about 14% on its own result. And the company that has just retaken the title of the world’s most valuable, Apple, got there in part by spending far less on AI infrastructure than its rivals.
But that wariness from investors expands beyond just AI spending, with Aitken saying that software supports had been too hasty.
The most out-of-favour corner of the ASX, he says, is large software, sold down as a presumed loser to AI. Xero is down about 64% over the past year, WiseTech has more than halved in 2026, and Seek is off about 30% this year, while their revenue and cash flow have largely held. What has fallen is the multiple investors will pay, cut for AI risk, rather than the business underneath. “It’s been indiscriminate. It’s a global event,” Aitken said. “There’s definitely clear value in those software as a service names. They’re mostly good businesses with high barriers to entry, and not just can be replicated by AI.”
He compares it to the scare that hit ResMed in 2023, when the sleep-apnoea group fell about a third on fears that weight-loss drugs would gut demand for its devices. The fear proved overdone; ResMed’s own data later showed patients on those drugs were more likely, not less, to start therapy. “The truth lay in between,” he said.
Aitken is not calling the bottom. “The setup is more in favour of reward than risk in most of those names, albeit it’s probably not tomorrow,” he said. It needs a catalyst, he added, whether a short-covering rally or a fall in the cost of running AI models, and it needs patience.
