Key Takeaways
\nInterest rate cuts from the Federal Reserve could offset a stock market drag from slowing AI infrastructure investments, according to a BCA Research report.A combination of declining interest rates and sticky inflation could prop up tech stocks and delay a Dotcom Bubble-style crash.<\/p>\n
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.<\/p>\n
U.S. hyperscalers\u2014Microsoft (MSFT<\/a>), Alphabet (GOOG<\/a>), Amazon (AMZN<\/a>), Meta (META<\/a>), and Oracle (ORCL<\/a>)\u2014are expected to spend more than $500 billion on infrastructure, much of it related to AI, this year. If they do, tech capital expenditures<\/a> 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 \u201cZoom boom,\u201d wrote Dhaval Joshi, chief strategist at BCA Research, on Thursday.\n<\/p>\n 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, \u201cAI-plays in the stock market are in imminent danger.\u201d But this cycle looks more like the Zoom boom than the Dotcom Bubble<\/a>, he argues, thanks to the interest rate environment.\u00a0\n<\/p>\n “Even if the AI capex boom ends, an ultra-accommodative Fed can prolong the stock market rally,” wrote Joshi.\u00a0\n<\/p>\n Why This Matters<\/p>\n Artificial intelligence spending has fueled stock market gains for years, prompting some to worry what will happen to stocks if that spending slows. Those fears were a main reason that tech stocks wavered in the final months of 2025.<\/p>\n \u201cThe tech sector did not slump in 2021 because, as inflation picked up, the real bond yield continued to decline,\u201d writes Joshi, who notes that it\u2019s this real bond yield<\/a>\u2014that is, a bond\u2019s inflation-adjusted return\u2014not the nominal yield, that matters for stock valuations. Tech stocks gave up market leadership in 2021, but they didn\u2019t tumble from their post-pandemic highs until the Federal Reserve\u2019s rate hikes began driving up real interest rates in 2022.\u00a0\n<\/p>\n \u201cFast forward to today, and rate hikes are not on the Fed\u2019s agenda. Quite the contrary, the Fed is signalling more rate cuts,\u201d wrote Joshi. If inflation sticks around 3%<\/a> while the Fed cuts rates, real yields will decline and support stock valuations, he argues.\u00a0\n<\/p>\n There’s no guarantee<\/a> 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<\/a> on Friday, the odds of there being no rate cuts in the first half of this year jumped to a 1-month high.\n<\/p>\n