Show Me the Money: Investors Draw a Sharp Line on Massive AI Spending
Stuart Katz
Executive Summary
Major U.S. stock indexes closed the week mixed as large-cap growth and artificial intelligence (AI)-related stocks sharply reversed early-week gains to finish lower, while small-cap and value-oriented stocks outperformed. The Russell 2000 and S&P MidCap 400 Indexes advanced 1.30% and 1.3%, respectively, while the Nasdaq Composite declined 2.0%. The S&P 500 Index declined 0.6%. Large-cap value stocks outperformed large-cap growth stocks for the fourth consecutive week.
Within the S&P 500, communication services (-8.5%) and technology (-1.8%) were only sectors with negative returns; healthcare (+3.0%) and utilities (+2.0%) were the best performing. EAFE markets returned +0.9% with gains in Europe (+1.3%) and the U.K. (+0.3%) offsetting losses in Japan (-0.3%) while EM markets returned -0.7% amid a plunge in Brazil (-22.5%) based on election results.
Rates fell across the curve as risk aversion in the AI trade found traders seeking safe havens. 2-year rates fell 9bps to 4.59%; 10-year rates fell 7bps to 4.93%. The recession-watch 3M-10Y spread compressed 1bp to +84. The 2yr-10yr spread widened 3bps to +34. Rates fell in other developed markets as well. The Italian BTP-German Bund spread is 1.19% while the French OATs-German Bund spread is 1.65%. The 5-year breakeven inflation expectations were unchanged at 2.47% (vs. recent high of 2.74% on May 4, 2026); 10-year breakeven inflation expectations fell 1bp to 2.34% (vs. recent high of 2.52% on May 4, 2026); the 10Y real yield fell 6bps to 2.59%. For 2026, markets now expect one additional rate hike.
Brent prices rose 0.8% to $118/bbl. U.S. natural gas prices rose 9.8% while European gas rose 10.5%; both remain volatile based on war and weather-related headlines. Gold fell 3.0% to $3,875/oz, while silver fell 8.9% to $49/oz. Bitcoin fell 5.6% to $76,782.
Key Takeaways
1. The U.S. economy grew faster than expected in the third quarter, supported by consumer spending and AI-related investment.
Real GDP grew at a +3.4% annualized rate, above the roughly +3.2% economists expected and up from +2.2% in the second quarter. Consumer spending grew +3.8%, matching the prior quarter’s pace, led by spending on health care and restaurants. Investment in information processing equipment, which includes the computers and servers used in AI data centers, rose +37.4%, while residential investment declined as high mortgage rates weighed on housing. Real final sales to private domestic purchasers, which exclude volatile categories like trade, inventories, and government spending, grew +4.9%.
Implication
Underlying private demand grew faster than the headline, with the quarter’s strength coming from households and businesses rather than temporary swings in trade or inventories.
2. Inflation increased in September, and after adjusting for higher prices, consumer spending stalled.
The PCE price index, the Fed’s preferred inflation measure, rose +3.6% from a year earlier, up from +3.4% in August, while core PCE inflation, which excludes food and energy, rose to +3.1%. Consumer spending increased +0.5% for the month but was essentially flat after adjusting for inflation. Real disposable income fell -0.3%, and the personal saving rate dropped to 3.8%, its lowest level since 2022, as households saved less to keep spending.
Implication
The strong quarter ended on a softer note, with rising prices absorbing the gains in household spending and leaving consumers with a thinner savings cushion.
3. The Federal Reserve held interest rates steady this week, but two policymakers voted for a rate hike.
The Fed kept its target range at 3.75%-4.00% after raising rates in September, but two members dissented in favor of a quarter-point increase. The Fed’s statement said economic activity is “expanding at a strong pace” and inflation “remains elevated,” while Chair Kevin Warsh declined to signal the next move. Markets raised the odds of a December hike to about 80%, according to CME FedWatch. Longer-term Treasury yields initially rose after the decision, with the 10-year yield closing above 5% on Wednesday.
Implication
The dissents show that support for further tightening extends beyond a single official, which is why markets now treat a December hike as the most likely outcome.
4. Investors drew a sharper line between AI spenders that generate cash and those that consume it.
Alphabet shares fell more than -10% last Thursday after the company reported a second consecutive quarter of negative free cash flow, with quarterly capital spending of more than $51 billion outpacing the cash its business generated. In contrast, Microsoft reported +48% growth in its Azure cloud business and positive free cash flow, and its shares held up far better. Earlier in the week, Oracle jumped more than +10% after capping how much new capital it plans to raise. Meanwhile, financing for AI continues to grow: Meta launched a stock sale of up to $95 billion to fund new data centers, AI developer Anthropic filed to go public, and Microsoft announced plans to issue $25 billion of debt.
Implication
After weeks of focus on how the AI buildout is financed, investors are rewarding the companies that can pay for it from their own cash flow. The small size factor outperformed, with the Russell 2000 rising nearly +2.5%. Overall, 9 of 11 sectors traded higher. Tech led all sectors with a +3.1% gain, while Communication Services fell over -5% after Alphabet’s earnings disappointed. High Beta and Momentum stocks outperformed Low Volatility, reversing part of last week’s shift toward defensive stocks. Treasury yields edged higher, with the 10-year yield remaining near 5%. Oil swung after attacks on Saudi energy facilities and ended the week nearly +3% higher, while the U.S. dollar firmed and the VIX, a measure of expected volatility, fell back below 20.
RSAward-Winning Financial Advising
Robertson Stephens paid no fee to obtain recognition but has paid licensing fees to reference its appearances on the Newsweek, USA Today, and FA Magazine rankings lists. See Awards Disclosures
Weekly Commentary
Show Me the Money: Investors Draw a Sharp Line on Massive AI Spending
Stuart Katz
Executive Summary
Major U.S. stock indexes closed the week mixed as large-cap growth and artificial intelligence (AI)-related stocks sharply reversed early-week gains to finish lower, while small-cap and value-oriented stocks outperformed. The Russell 2000 and S&P MidCap 400 Indexes advanced 1.30% and 1.3%, respectively, while the Nasdaq Composite declined 2.0%. The S&P 500 Index declined 0.6%. Large-cap value stocks outperformed large-cap growth stocks for the fourth consecutive week.
Within the S&P 500, communication services (-8.5%) and technology (-1.8%) were only sectors with negative returns; healthcare (+3.0%) and utilities (+2.0%) were the best performing. EAFE markets returned +0.9% with gains in Europe (+1.3%) and the U.K. (+0.3%) offsetting losses in Japan (-0.3%) while EM markets returned -0.7% amid a plunge in Brazil (-22.5%) based on election results.
Rates fell across the curve as risk aversion in the AI trade found traders seeking safe havens. 2-year rates fell 9bps to 4.59%; 10-year rates fell 7bps to 4.93%. The recession-watch 3M-10Y spread compressed 1bp to +84. The 2yr-10yr spread widened 3bps to +34. Rates fell in other developed markets as well. The Italian BTP-German Bund spread is 1.19% while the French OATs-German Bund spread is 1.65%. The 5-year breakeven inflation expectations were unchanged at 2.47% (vs. recent high of 2.74% on May 4, 2026); 10-year breakeven inflation expectations fell 1bp to 2.34% (vs. recent high of 2.52% on May 4, 2026); the 10Y real yield fell 6bps to 2.59%. For 2026, markets now expect one additional rate hike.
Brent prices rose 0.8% to $118/bbl. U.S. natural gas prices rose 9.8% while European gas rose 10.5%; both remain volatile based on war and weather-related headlines. Gold fell 3.0% to $3,875/oz, while silver fell 8.9% to $49/oz. Bitcoin fell 5.6% to $76,782.
Key Takeaways
1. The U.S. economy grew faster than expected in the third quarter, supported by consumer spending and AI-related investment.
Real GDP grew at a +3.4% annualized rate, above the roughly +3.2% economists expected and up from +2.2% in the second quarter. Consumer spending grew +3.8%, matching the prior quarter’s pace, led by spending on health care and restaurants. Investment in information processing equipment, which includes the computers and servers used in AI data centers, rose +37.4%, while residential investment declined as high mortgage rates weighed on housing. Real final sales to private domestic purchasers, which exclude volatile categories like trade, inventories, and government spending, grew +4.9%.
Implication
Underlying private demand grew faster than the headline, with the quarter’s strength coming from households and businesses rather than temporary swings in trade or inventories.
2. Inflation increased in September, and after adjusting for higher prices, consumer spending stalled.
The PCE price index, the Fed’s preferred inflation measure, rose +3.6% from a year earlier, up from +3.4% in August, while core PCE inflation, which excludes food and energy, rose to +3.1%. Consumer spending increased +0.5% for the month but was essentially flat after adjusting for inflation. Real disposable income fell -0.3%, and the personal saving rate dropped to 3.8%, its lowest level since 2022, as households saved less to keep spending.
Implication
The strong quarter ended on a softer note, with rising prices absorbing the gains in household spending and leaving consumers with a thinner savings cushion.
3. The Federal Reserve held interest rates steady this week, but two policymakers voted for a rate hike.
The Fed kept its target range at 3.75%-4.00% after raising rates in September, but two members dissented in favor of a quarter-point increase. The Fed’s statement said economic activity is “expanding at a strong pace” and inflation “remains elevated,” while Chair Kevin Warsh declined to signal the next move. Markets raised the odds of a December hike to about 80%, according to CME FedWatch. Longer-term Treasury yields initially rose after the decision, with the 10-year yield closing above 5% on Wednesday.
Implication
The dissents show that support for further tightening extends beyond a single official, which is why markets now treat a December hike as the most likely outcome.
4. Investors drew a sharper line between AI spenders that generate cash and those that consume it.
Alphabet shares fell more than -10% last Thursday after the company reported a second consecutive quarter of negative free cash flow, with quarterly capital spending of more than $51 billion outpacing the cash its business generated. In contrast, Microsoft reported +48% growth in its Azure cloud business and positive free cash flow, and its shares held up far better. Earlier in the week, Oracle jumped more than +10% after capping how much new capital it plans to raise. Meanwhile, financing for AI continues to grow: Meta launched a stock sale of up to $95 billion to fund new data centers, AI developer Anthropic filed to go public, and Microsoft announced plans to issue $25 billion of debt.
Implication
After weeks of focus on how the AI buildout is financed, investors are rewarding the companies that can pay for it from their own cash flow. The small size factor outperformed, with the Russell 2000 rising nearly +2.5%. Overall, 9 of 11 sectors traded higher. Tech led all sectors with a +3.1% gain, while Communication Services fell over -5% after Alphabet’s earnings disappointed. High Beta and Momentum stocks outperformed Low Volatility, reversing part of last week’s shift toward defensive stocks. Treasury yields edged higher, with the 10-year yield remaining near 5%. Oil swung after attacks on Saudi energy facilities and ended the week nearly +3% higher, while the U.S. dollar firmed and the VIX, a measure of expected volatility, fell back below 20.
Robertson Stephens paid no fee to obtain recognition but has paid licensing fees to reference its appearances on the Newsweek, USA Today, and FA Magazine rankings lists. See Awards Disclosures
More from Robertson Stephens
Economic Commentary: Mid Term Blues
Midterm election economy: the vote may shape 2027 fiscal policy but almost certainly not monetary policy. Here is what it means for your household.
Robertson Stephens Deepens its Presence in Colorado
New Milwaukee office and six-person team will serve foundations, nonprofits, faith-based organizations, corporations and endowments
Five Charts for the Week that Was: October 30, 2026
Chief Economist Jeanette Garretty provides 5 economic charts covering topics including growth of the US economy, consumer spending, the price of refined products, and the central banks.
Disclosure and Source
Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens Wealth Management, LLC”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only and should not be construed as investment, tax or legal advice. It does not constitute a recommendation or offer to buy or sell any security, has not been tailored to the needs of any specific investor, and should not provide the basis for any investment decision. Please consult with your Advisor prior to making any Investment decisions. The information contained herein was carefully compiled from sources believed to be reliable, but Robertson Stephens Wealth Management, LLC cannot guarantee its accuracy or completeness. Information, views and opinions are current as of the date of this presentation, are based on the information available at the time, and are subject to change based on market and other conditions. Robertson Stephens Wealth Management, LLC assumes no duty to update this information. Unless otherwise noted, any individual opinions presented are those of the author and not necessarily those of Robertson Stephens Wealth Management, LLC. Indices are unmanaged and reflect the reinvestment of all income or dividends but do not reflect the deduction of any fees or expenses which would reduce returns. Past performance does not guarantee future results. Forward-looking performance targets or estimates are not guaranteed and may not be achieved. Investing entails risks, including possible loss of principal. Alternative investments are only available to qualified investors and are not suitable for all investors. Alternative investments include risks such as illiquidity, long time horizons, reduced transparency, and significant loss of principal. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens Wealth Management, LLC only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Robertson Stephens Wealth Management, LLC’ current written disclosure brochure filed with the SEC which discusses, among other things, Robertson Stephens Wealth Management, LLC’ business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. © 2026 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens Wealth Management, LLC is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere. A4011
Talk To Us