AI Spending Surges Toward Defense Levels: Will Tech’s Capex Binge Break the Market?

If you’re a trader who’s spent the last year riding the AI wave, you might want to check your seatbelt. The latest bombshell from TS Lombard, as reported by Forbes on June 5, 2026, pegs US AI investment at a staggering 2% of GDP this year, putting it on par with defense spending. That’s not a typo. We’re talking about a capital outlay for artificial intelligence that’s now rivaling what the US spends on the military, an institution that has its own aircraft carriers and a penchant for expensive hardware. For context, Norway and Saudi Arabia, the next biggest AI spenders, are only at 0.7% of GDP. The US is lapping the field, and then some.

Why does this matter? Because the market’s AI obsession has gone from a speculative meme to a macro force. The S&P 500 and Nasdaq, after nine straight weeks of vertical moves, finally took a breather. Tech and semiconductors, the darlings of this cycle, are showing signs of exhaustion. The question now isn’t whether AI is the future, it’s whether the market can stomach the bill. The capex binge is real: Apple and Alphabet are still printing cash, but Microsoft and Amazon are burning through it as they race to build out capacity. According to Seeking Alpha, industry-wide capex is up over 60% year-on-year, with the hidden risk being the $500+ billion in spending that could turn from tailwind to anchor if revenue doesn’t keep up.

The jobs data added fuel to the fire. A strong labor market sent the odds of a Fed hike this year to 52% on Kalshi, per CNBC. That’s not the kind of backdrop that makes leveraged tech trades sleep easy. Barron’s notes that stocks are getting spooked by good news, which is a classic late-cycle tell. The May CPI is expected to spike above 4%, with energy and manufacturing input prices leading the charge. Inflation is back in the headlines, and the market’s favorite growth stories are suddenly looking a little less bulletproof.

Historically, when capex outpaces revenue growth in tech, multiples compress. We saw this in the dot-com bust and again in the 2018 semi cycle. The difference now is scale. AI is not just a sector story, it’s a macro phenomenon. The S&P 500’s recent parabolic run has been almost entirely driven by the AI trade. The risk is that if the narrative cracks, there’s no safety net. The rest of the market has been left behind, with real estate (VNQ at $97.2, flat) and TIPS (TIP at $109.36, flat) showing all the excitement of a Sunday afternoon in a library.

The absurdity is hard to ignore. We’re at the point where AI spending is being compared to the Pentagon’s budget, yet the market is acting surprised when volatility picks up. The ETF flows into tech have been relentless, but now we’re seeing outflows as traders question whether the capex arms race is sustainable. The AI trade has become a crowded theater, and the exits are narrow. If inflation keeps rising and the Fed turns hawkish, the unwind could be brutal.

The bigger picture is that AI is no longer a sideshow. It’s the main event. The US is betting the farm on artificial intelligence, and the rest of the world is struggling to keep up. The question for traders is whether the market can absorb this much spending without a reset. The S&P 500’s calm is deceptive. Underneath, there’s a battle raging between the bulls who believe in infinite growth and the bears who see a capex bubble waiting to burst.

Strykr Watch

Technically, the S&P 500 is in no-man’s land. After nine weeks of gains, momentum has stalled. The index is hovering just below all-time highs, with resistance at the previous peak and support at the 50-day moving average. Semiconductors, which led the charge, are rolling over. RSI readings are elevated but not extreme, suggesting there’s room for more downside if sentiment sours. VNQ and TIP are both flat, offering no help from the defensive side. The market is looking for a new catalyst, and the next CPI print could be it.

The risk is that a spike in inflation or a hawkish Fed surprise triggers a broad tech unwind. The capex story is great until it isn’t. If revenue growth doesn’t keep up, multiples will compress and the AI trade could go from hero to zero in a hurry. The technicals suggest caution. The market is stretched, and the path of least resistance could be lower if the macro backdrop deteriorates.

On the flip side, if inflation moderates and the Fed stays on hold, the AI trade could get a second wind. The capex binge is not going away, and the US is still the global leader in AI investment. The question is whether the market can look through near-term volatility and focus on the long-term growth story.

The bear case is that the market is underestimating the risks. Capex cycles are notoriously boom and bust. If the AI buildout overshoots demand, we could see a painful correction. The bull case is that AI is a generational shift, and the market is just pausing before the next leg higher. The truth is probably somewhere in between, but the risks are rising.

For traders, the opportunity is in the volatility. The AI trade is crowded, but that also means there are outsized moves when sentiment shifts. Look for pullbacks to support as potential entry points, but keep stops tight. The risk-reward is skewed to the downside in the short term, but the long-term story is intact if the macro backdrop cooperates.

Strykr Take

The AI capex arms race is reaching absurd proportions, and the market is finally waking up to the risks. The S&P 500’s calm is a mirage. Underneath, there’s a battle raging over whether the AI trade can keep going or if we’re due for a reset. For traders, this is a time to stay nimble and focus on risk management. The volatility is just getting started.