What's next for the Big Tech stocks?

Data: Financial Modeling Prep; Chart: Axios VisualsFive of the Magnificent 7 reported earnings this week, and all but Meta had a positive stock move afterward, with Amazon hitting a record high.Why it matters: The results, and the market's response, capture the debate now taking place on Wall Street over the AI rally: How much return can the tech giants get on their biggest bet ever.What they're saying: Demand for AI infrastructure, tools and power is still outstripping supply, notes Evan Schlossman of investment fund SuRo Capital. "They're seeing shortfalls in their ability to supply given the amount of demand. That is what's directly leading to this increase in spending."Between the lines: This quarter, companies laid out clearer cases for their investments in AI. Meta and Google shared how AI is fueling higher ad revenue.Microsoft talked about demand for its AI tools from cloud customers.Apple teased an AI-enabled Siri come 2026, although its hardware sales were strong enough already without that.By the numbers: Wall Street projects that AI capex will reach 94% of operating cash flow (minus dividends and buybacks) through 2026, according to Bank of America.That's up from 76% in 2024, showing how fast AI investments are ballooning.Since the ratio is still below 100%, companies technically don't need to issue debt to fund spending, but "they're getting close," BofA notes.That may help explain the burst of AI-fueled borrowing in September and October, led by Oracle and Meta.Zoom in: All these companies are spending big on AI, but only Meta got dinged for it. Why?Its ratio of capex to revenue is the lowest among the Mag 7.Investors enjoyed Meta's "year of efficiency" in 2023 and may feel as if Meta CEO Mark Zuckerberg is "treating shareholders cash as if its his cash," Gil Luria, managing director at the investment firm D.A. Davidson, tells Axios.Zuckerberg may argue that the stakes of AI are high enough to warrant a ramp in spending.Zoom out: Herein lies the central risk of AI investing: It's a highly expensive bet and nobody knows if it will pay off.Companies might overbuild capacity. (How many data centers do we need? We don't know yet.)If the largest tech companies that have fortress balance sheets and strong cash flow overbuild, they can just pause their capex.But if companies start taking on debt to finance development, and demand doesn't catch up, that could create a systemic risk, Luria says.The bottom line: Companies may be reaching a limit on how much capex they can fund purely from cash flows.

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What's next for the Big Tech stocks?

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