Mega-Cap Capex Miss Threatens AI Market Rally, Schwab Strategist Warns

Kevin Gordon of Schwab noted that the S&P 500 is only 1% shy of its all-time high, yet the typical stock within the index has suffered a 14% drawdown. He added that AI-related stocks are propping up the market, so a single capex miss—an AI capital spending shortfall—could trigger earnings disruption.

However, that 14% figure refers to the average decline from the highest to lowest point for S&P 500 constituents since early August, not their current losses. Because the index is weighted by market capitalization, its performance is driven by the largest companies.

Why Is AI Carrying a Market That Looks Weak Underneath?

Kevin Gordon, who serves as Schwab's head of macro research and strategy, made these comments on Bloomberg This Weekend.

Gordon said that technology stocks missed out on a significant portion of the summer rally, but currently AI-related equities are supporting the broader market. He added that concerns about valuations and public resistance to AI are starting to diminish.

In a similar vein, Steve Eisman of Big Short fame remarked in July that the entire market has turned into a single AI bet.

What Happens if Mega-Caps Post a Capex Miss?

Gordon said that a single miss combined with reduced spending budgets is where earnings disruption could start. He shared a quote that he said he could not take credit for.

“it’s no longer earning season, it’s CapEx season.”

Kevin Gordon, via Bloomberg

FactSet forecasts 32.4% earnings growth for the S&P 500 in 2026, rising from roughly 15% at the beginning of the year.

Torsten Slok, Apollo Global Management's chief economist, issued an AI debt warning last month. He noted that the cost to insure cloud giants' debt against default indicates risk in debt-financed AI spending.

By contrast, Gordon stated that the best scenario for stocks would be the Fed raising rates at approximately every other meeting. That pace would not be intended to sharply decelerate growth or damage the labor market.

Nevertheless, the index now depends on just a few spending plans, while the average stock has already experienced a double-digit decline. The third-quarter earnings season, beginning this month, will reveal whether those budgets remain intact.