Tech stocks that weren't manufacturers of artificial intelligence (AI) hardware were feeling the squeeze this week. Several top tech companies indicated plans to spend heavily on building out their AI capabilities; with that, investors aggressively sold out of software companies.
One of these was customer engagement software specialist Braze (BRZE +1.88%). As of Friday morning before market open, the company's shares were down by 15% week to date, according to data compiled by S&P Global Market Intelligence.
200 billion reasons to be worried?
Braze didn't have any news of its own sufficient to move its stock meaningfully. It's clear, then, that the company was caught up in the general software rout. If we have to zero in on one particular catalyst for this, it's the second-quarter results published on Wednesday by Alphabet.
Image source: Getty Images.
While Google's parent showed robust growth and estimates-beating fundamentals, it raised its guidance for full-year 2026 capital expenditures (capex) to $195 billion to $205 billion. That was up from its preceding $180 billion to $190 billion. Management also said that capex will increase substantially in 2027.
Not surprisingly, Alphabet executives cited the need to invest aggressively in AI infrastructure as a key reason for the higher capex projections.
NASDAQ: BRZE
Key Data Points
A stock for the patient
Alphabet has been on top of the tech food chain for decades now, so where it goes, many peer companies will follow. The prospect of mountains of IT budget money being diverted to AI from, say, software implementations and upgrades, spooked investors. We shouldn't be surprised if this fear lingers for some time.
Given this, I'd feel comfortable taking a chance on a solid but beaten-down software company. Any tool that can give a business an edge with customer engagement is inherently appealing, and Braze's solutions qualify. I should caution, though, that these concerns about "AI spend disruption" might not dissipate for a while, so Braze looks more like a mid- to long-term play.
