Copy of AI Spending Is Starting to Break Things

 
AI Spending Is Starting to Break Things
IBM May Have Just Changed the AI Conversation
For the last two years, most investors have viewed AI as an almost universal positive for technology.
More demand.
More spending.
More growth.
That may still prove true over the long run.
But IBM's earnings report introduced an important possibility that many investors have not fully considered:
The AI boom may be creating winners by creating losers elsewhere.
IBM didn't simply report disappointing results. Management pointed to something much more important.
Customers are redirecting spending away from traditional hardware and software and toward AI infrastructure—servers, chips, networking equipment, and the physical capacity needed to support the AI buildout.
That is a very different conversation than the one investors have been having.
IBM's results reveal a critical shift — AI spending isn't just creating new winners, it's actively pulling budget away from traditional technology. The AI boom may be a zero-sum game for parts of the tech sector.
The AI Risk May Be Closer Than Investors Think
Until now, the primary concern surrounding software companies has largely been a long-term one.
Eventually, AI could replace portions of existing software businesses through customized AI-generated solutions.
But that has always felt like tomorrow's problem.
IBM suggests investors may need to consider today's problem instead.
If corporate technology budgets are already shifting toward AI infrastructure, then some traditional technology companies may begin feeling that pressure immediately—not years from now.
That doesn't mean AI is failing.
It means AI spending may be moving from one part of the technology ecosystem to another.
And that distinction matters.
💡 The biggest AI risk may no longer be missing the boom. It may be owning the wrong companies.
Why This Earnings Season Suddenly Matters More
Right now, IBM is only one company.
One earnings report does not establish a trend.
But if multiple companies begin delivering the same message over the coming weeks, expectations for the broader technology sector—particularly software—may need to come down.
That would represent a meaningful shift in one of the market's most important leadership groups.
In this morning's Sevens Report, we explain exactly what investors should watch.
One of the most important indicators is the software ETF (IGV).
Rather than trying to analyze every individual software earnings report, we're watching whether IGV can hold an important technical level. If it breaks below that level, it could become an early warning sign for the broader technology sector.
There Is Another Question Investors Should Be Asking
IBM's comments also raise a broader issue.
If companies are diverting spending toward AI infrastructure because they fear missing out, then investors eventually have to ask an obvious question:
Will all of this spending generate the return everyone expects?
That doesn't mean the current AI investment cycle is over.
But it does raise the stakes.
The larger the investment being made today, the more important the eventual return on that investment becomes.
It's one more reason this earnings season deserves close attention.

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But That Was Only One Part of Today's Sevens Report...
Every morning we connect the stories that actually matter before the opening bell.
Today's report also covered several other developments that could influence markets over the coming weeks.
How the Key Market Forces Are Interacting
These three forces don't move in isolation — each one is feeding the others.
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Inflation
June CPI came in softer than expected, easing rate hike fears. But a nearly 20% surge in oil prices is keeping inflation concerns alive.
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Commodities
Oil is responding to Middle East tensions and Strait of Hormuz developments, not just economic data. Gold and copper reflect a mix of cooler inflation, dollar weakness, and AI-driven demand.
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Currencies & Bonds
A weaker dollar initially followed cooler CPI, but rebounded as oil rose. The 10-year Treasury yield remains elevated — a potential headwind for stocks.
The Bottom Line: Cooler inflation data should have been a clear win — but rising oil prices are complicating the picture. That's pushing up bond yields, supporting the dollar, and keeping the Fed cautious. These forces are working against each other, and that tension is what makes this market environment so difficult to navigate.
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Every morning before the opening bell we connect:
So instead of walking into client meetings trying to organize dozens of disconnected headlines, you already understand how they fit together.
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