AI turned Big Tech stocks around. But a huge sell-off shows investors are wary of the insane spending.

• Investors are starting to question tech companies' free-spending into artificial intelligence.
• The Nasdaq Composite fell over 3% on Wednesday — its worst showing since 2022.

Big Tech appears to be tipping into troubled territory again.

In 2022, US tech companies grappled with falling demand after aggressive expansions during the pandemic, prompting a rout in tech stocks.

However, the rush into artificial intelligence in 2023 reversed the decline, with the S&P500 index gaining 40% since the start of 2023 while the tech-focused Nasdaq gained 60% over the same period.

Now, investors are getting impatient, with US stocks selling off amid questions about whether too much money is going to AI.

Michael Strobaek, the global CIO at Swiss private bank Lombard Odier, wrote in a report released this week that major stock markets have been driven by "investor optimism that we think borders on complacency."

"Enthusiasm for artificial intelligence has supercharged some US equities, driving the S&P 500 and Nasdaq to new highs, yet leaving performance extremely concentrated in a few mega-cap names," Strobaek wrote.

This concentration makes the effect of any major decline in Big Tech stocks even more pronounced.

On Wednesday, all major US indices closed lower, with the Nasdaq Composite falling over 3% to mark its worst trading day since October 2022. Meanwhile, the Nasdaq 100 index lost $1 trillion, according to Bloomberg.

Among the losers were Wall Street AI chip darling Nvidia, which closed nearly 7% lower, and Alphabet, which closed 5% lower after reporting mixed second-quarter earnings.

Investors grilled Alphabet — Google's parent company — about how the company's AI initiatives were doing and their revenue-generating potential. However, Google executives provided few clues, Business Insider's Katherine Tangalakis-Lippert reported.

All eyes on the rest of Big Tech

Other Big Tech companies, including Amazon, Apple, Microsoft, and Meta, report quarterly earnings next week. After spending so much money on AI, investors will focus on what they can bring to the table in the near term.

As Jim Reid, a research strategist at Deutsche Bank, asked in a Wednesday note, "A key question to ask is how much are companies willing to spend to outpace one another in the AI race?"

Reid acknowledged that the race for the best AI model "doesn't come cheap." [any dollar signs attached here? —> doesn't have his own forecast but cited this fig: CEO of Anthropic — the AI company Amazon is betting billions on — says it could cost $10 billion to train AI in 2 years]

Some analysts have been warning that investor euphoria over AI resembles a market bubble.

As Lombard Odier's Strobaek wrote, the risk of a market reversal is growing, but since tech was the big winner up until now, it's likely that some money will rotate to other stocks and sectors.

As for Big Tech, it appears to be a case of being safe rather than being sorry — because they can afford to.

In April, Google's AI boss said the company plans to invest more than $100 billion over time in AI technology development.

"When we go through a curve like this, the risk of underinvesting is dramatically greater than the risk of over-investing for us here, even in scenarios where if it turns out that we are over-investing," said Google CEO Sundar Pichai during the Tuesday earnings call.