OCTOBER 31 2025 | By Steven Wieting & David Bailin

Big Tech’s Boom: Higher (EPS), Higher (CapEx) and Fire (People)

A combination of AI driven productivity, lower interest rates and reduced trade policy uncertainty fuels our bullish outlook on growth sectors of the US and world equity markets into 2026.  

SUMMARY
  • Big Tech continues to deliver double-digit EPS growth while raising AI-related capital investment by $155 Billion annualized .  Their AI applications raise economic output by eliminating labor.  Quietly or openly, the same tech firms are reducing headcount.

  • Fed Chair Powell raised uncertainty over a December rate cut, but we see a high likelihood that the Fed continues easing.  Public surveys available during the government shutdown show cooling labor demand.  

  • AI is not single-handedly causing a quick breakdown in employment.  But its modest negative impact on employment is contributing to the unusual condition of Fed easing during a market boom.  

  • US Industrial production has grown just 0.9% over the last 12 months.  In contrast, real consumer goods demand grew 4.2%.  For 2026, we expect manufacturing, trade and construction output to accelerate, helping stabilize employment.

This environment calls for a different mix of US and international equities than benchmarks in 2026.  It also suggests a full allocation to fixed income.  Bonds are now fairly valued, meaning that they earn a higher interest rate than expected inflation and can provide meaningful diversification to investor portfolios.  

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 [1] For the five “Magnificent 7” firms reporting in past week. They are the largest spenders among public tech. 

Perspective

Big Tech’s Heart Beat:  Higher, Higher and Fire

This is an AI tech boom.  There is no doubt about it.  Big Tech continues to deliver double-digit EPS growth while raising its AI-related capital investments, with spending gains from the largest firms reporting this week now annualizing at $155 Billion.  

As usual, there were some stronger and weaker aspects contained in the quarterly reports from five of the “Magnificent 7.”   Four of the five firms (MSFT, GOOGL, META, AAPL, AMZN) reported double-digit revenue growth. All five reported double-digit EPS gains away from one-time tax distortions.  

Meta shares fell because the firm expected higher investment spending on computing power in the year ahead that will hold back profits and cash flow.  To a lesser extent, the story was similar for Microsoft.  On the other hand. shares of Amazon and Google, where investment spending is most rapid, rallied sharply. Apple, the firm that is spending the least on AI, had the slowest revenue and EPS gains.  

This quarter also made clear that Big Tech’s AI applications are raising economic output by eliminating labor.   Quietly or openly, these same tech firms are reducing their headcount.  

Amazon reported its largest corporate layoff plan in its history during earnings week.  It does not expect its business to contract as it reduces staffing.  Rather, it expects to grow without adding people. This is the dual threat and promise of AI.

Insights for the Week Ahead
Insight #1

Fed Guarded on the Outlook for Employment

Fed policy tracks labor markets more than inflation—their lockstep relationship is normalizing post-pandemic. With no employment collapse ahead and natural labor market weakening underway, Chairman Powell signals further cuts. Our Outlook 2026 explores why this normalization creates opportunity beyond reactive positioning.

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Insight #2

Stall Speed for Hiring

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Insight #3

Markets Higher in 2026:  At the Intersection of Tariffs, AI and Manufacturing

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Insight #4

Outlook 2026: Position Portfolios for  Broader US Growth Ahead

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Insight #5

For Investors, It All Adds Up to Higher Profits in 2026

 

 

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Source: Haver Analytics CIO Capital Group LLC is an SEC-registered investment adviser. This material is for informational purposes only and does not constitute investment advice or recommendations. All investing involves risk, including potential loss of principal. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially. Past performance is not indicative of future results. For additional information about CIO Capital Group LLC, see our Form ADV Part 2A at www.adviserinfo.sec.gov.