The numbers are in. Wall Street is cheering the top-line beats, but I am looking at the rot underneath the floorboards. On October 31, 2025, the S&P 500 closed at a record 6,840.20, yet the atmosphere in the trading pits is anything but celebratory. We are witnessing a fundamental decoupling between corporate performance and investor confidence. The reason is simple. Big Tech has entered a CapEx arms race that is cannibalizing its own margins.
The Ouroboros Economy
I sat through the Alphabet and Microsoft earnings calls this week, and the narrative is shifting from potential to pain. Alphabet reported its first-ever $100 billion quarter, reaching $102.3 billion in revenue. On paper, that is a victory. In reality, it is a warning. I dissected the Alphabet Q3 10-Q filing and found a staggering 83 percent year-over-year increase in capital expenditure, which hit $24 billion in just three months. This is the Ouroboros Economy: tech giants buying enough hardware from each other to keep the revenue numbers high while the cash disappears into data center concrete.
The market is finally doing the math. When you spend $93 billion a year on infrastructure just to maintain a 15 percent revenue growth rate, you aren’t scaling. You are running to stay in the same place. This is why the stocks aren’t moving. The efficiency ratio is collapsing.
Amazon and the High Cost of Cloud Dominance
Amazon is the latest to join this race to the bottom of the margin pool. While AWS revenue grew a healthy 20.2 percent to $33 billion, the cost of that growth is astronomical. Andy Jassy confirmed that Amazon is pushing toward $125 billion in total CapEx for 2025. I see a company that is forced to liquidate its retail efficiency to fund a GPU war it cannot afford to lose. According to latest S&P 500 performance data, Amazon is underperforming the broader index significantly this year, up only 6 percent compared to the market’s 18 percent gain. Investors are signaling that they no longer value a cloud beat if it requires a $34 billion quarterly cash burn.
Furthermore, the 14,000 corporate role cuts Amazon announced this quarter are not just about streamlining. They are a desperate attempt to protect the bottom line as the AI tax takes its toll. The market has grown wise to the fact that these tech companies are now utilities for the AI industry, rather than the high-margin software businesses they used to be.
Q3 2025 Financial Divergence Table
| Company | Revenue (Billions) | CapEx Spend (Q3) | 10-Year Yield Influence |
|---|---|---|---|
| Alphabet (GOOGL) | $102.3 | $24.0B | High |
| Amazon (AMZN) | $180.2 | $34.2B | Moderate |
| Microsoft (MSFT) | $70.1 (Fiscal Q3) | $15.0B+ | High |
The Fed and the Risk Free Gravity
The secondary weight on this market is the Treasury market. As of November 1, 2025, the 10-year Treasury yield is holding steady at 4.10 percent. You can track these Treasury yield trends to see why the Magnificent Seven are losing their luster. When you can get a guaranteed 4.1 percent return on sovereign debt, the hurdle rate for an AI story with 35 times forward earnings becomes nearly impossible to clear.
I am watching the upcoming Federal Reserve meeting on November 5. The market is pricing in a 25 basis point cut, but the real story is the dot plot. If the Fed signals that inflation is sticky at 2.7 percent, interest rates will stay high enough to keep pressure on tech valuations. The era of cheap money that fueled the 2023 and 2024 AI rally is over. We are now in a results-based reality where a revenue beat is ignored if the free cash flow is being incinerated in a furnace of H100 and B200 chips.
I believe we are entering a period of forced maturity. The companies that can prove they are using AI to actually lower their operating expenses, rather than just increasing their infrastructure spend, will be the only winners. Right now, only 39 percent of businesses report a positive financial impact from AI integration. That is a dangerous delta when billions are being spent on the supply side.
The next major milestone is January 27, 2026. That is when Microsoft will report its second-quarter fiscal results. I will be looking for one specific data point: the depreciation schedule of AI hardware. If these GPUs are aging faster than the revenue they generate, the tech sector is in for a valuation reset that no earnings beat can fix.
