Alphabet's $205B AI Budget Fuels Nvidia and Vertiv Despite Market Volatility

Key points

• Alphabet spent $51.4 billion on capital projects in Q3 2026, more than double the previous year, and expects spending to rise significantly in 2027.
• Microsoft reported $45.2 billion in capital spending for its fiscal Q1, slightly below guidance due to delayed third-party capacity, but expects spending to accelerate in the second half of its fiscal year.
• Nvidia's revenue surged 106% year-over-year to $96.2 billion in its fiscal Q2, with guidance for Q3 around $108 billion, though sequential growth is slowing to approximately 12%.
• Vertiv's Q3 net sales jumped 61% year-over-year to $4.3 billion, with organic growth accelerating to 55%, and the company raised its 2026 adjusted earnings per share forecast to $7.15.
• Nvidia trades at approximately 14 times expected fiscal 2028 earnings, while Vertiv trades at about 26 times expected 2027 earnings, making Nvidia relatively cheaper despite both stocks being below their recent highs.

Background

This development follows a severe market sell-off in late October 2026, where AI-related stocks lost approximately $5 trillion in value due to concerns over the return on massive infrastructure investments. Alphabet shares dropped 12.6% in a single day, wiping out $500 billion in market value, as investors questioned the profitability of hyperscale AI projects. Additionally, rising power costs from data center demand have forced 20% of American households to cut food spending, highlighting the broader economic impact of AI infrastructure expansion.

Why it matters

The continued escalation of capital expenditure by major tech firms like Alphabet and Microsoft signals that AI infrastructure demand remains robust, despite market volatility and concerns about immediate returns. This sustained spending supports the growth of suppliers like Nvidia and Vertiv, though investors are increasingly scrutinizing valuation multiples and the pace of sequential growth. The divergence in stock prices and earnings multiples suggests that while the AI build-out is ongoing, market sentiment is shifting toward caution, with investors weighing the long-term benefits against short-term cash burn and potential overvaluation.

What to watch

Investors should monitor Alphabet's Q4 2026 capital spending, which needs to reach approximately $63 billion to meet the lower end of its annual range. Nvidia's fiscal Q3 revenue, guided at around $108 billion, will be a key indicator of demand for its GPUs, while Vertiv's organic sales growth in 2027 will test the sustainability of its recent acceleration. Any further delays in third-party capacity or shifts in AI profitability metrics could trigger additional market volatility, as seen in late October 2026.