The AI bubble is already popping; we just don't know it yet

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The AI bubble is already popping; we just don't know it yet

Weird times in earnings-land, and we're talking about it on The Reg's home grown podcast

Brandon Vigliarolo

Brandon<br>Vigliarolo

GOVERNMENT AND IT NEWS REPORTER

Published<br>mon 3 Aug 2026 // 12:53 UTC

KETTLE Big tech's Q2 earnings have been pouring in over the last two weeks, and it looks like stock market investors are taking a pin to the AI bubble.<br>You can listen to the latest episode of The Kettle right here on this page, as well as on Spotify, Apple Music, or YouTube, where you can subscribe to get notified about the latest episode.

Between eye-watering capex expenses, shrinking free cash flow, and worries about chip availability, things are starting to look tight. El Reg editor-in-chief Matt Rosoff and systems editor Tobias Mann join host Brandon Vigliarolo for this episode of The Kettle to discuss what the numbers mean and how things pan out.

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Most importantly for Reg readers, they also offer advice on what IT teams should do in such a volatile market. Hint: It doesn't involve going all in on frontier lab products across the enterprise.

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A lightly edited transcript is included below:<br>Brandon (00:01)<br>Welcome back to The Register Kettle. I'm Brandon Vigliarolo, and this week it's all about what the latest quarter of tech earnings are telling us about that AI bubble. With me this week is our editor-in-chief Matt Rosoff and Systems Editor Tobias Mann to pick apart this haystack of earnings news to look for the bubble popping needle that might be hiding within. Guys, thanks for coming on.<br>Matt Rosoff (00:22)<br>Thank you.<br>Tobias Mann (00:23)<br>Good to be here.<br>Brandon (00:24)

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It's been a mess of up and down earnings from big tech this quarter, as reported in the past week. Not all of it seems bad, but despite that, a lot of investors seem pretty worried about the state of things. Matt, you've been watching this closely. Can you break this down and give us an understanding of what the numbers mean for both investors and the state of AI?<br>Matt Rosoff (00:46)<br>It seems as if we are in what often happens toward the final phases of a speculative time in the markets, what might be called a bubble, which is characterized by absolutely wild, insane swings in stock prices. These are not penny stocks; these are humongous massive cap tech stocks. Apple is down 10% today simply because they warned that their next quarter might not be as good as expected because memory and other component prices are so high. You have IBM losing more value in a single day after its last earnings warning than it had lost since Black Monday 1987. You have these massive tech stocks, which represent most of the value of the stock market, acting like penny stocks, and that tends not to be a great sign. That's usually when investors don't know what to make of the current state of things and are trying desperately to figure out where to put their money. There's a lot of tea leaf reading. It has varied widely. Meta, investors didn't like what Meta was saying. Their cash flow decreased dramatically because of the capex spending they're doing to build new data centers. Everybody freaked out on that and there was a big sell-off.<br>Brandon (02:29)<br>It was a massive cap swing, right? They're under a billion dollars in free cash flow. They had $8.5 billion last year at this time. I mean, that's huge.<br>Matt Rosoff (02:37)<br>Yeah, and this is all data centers to build out something to do with AI. I think probably in the end, Mark Zuckerberg at Meta has figured they will build as much as they can now, and the AI will help target ads and help their core business enough that it'll be worth it, and they can rent out whatever excess capacity they have in the future. But that is speculation.<br>Brandon (03:06)

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Right.<br>Matt Rosoff (03:06)<br>Point being, this is a situation where a lot of investors seem to be reading tea leaves. Amazon is up 15% today. Same story there: their capex and estimates went up. But because AWS grew faster than expected and because investors were looking at Amazon Web Services and their core business, they decided Amazon is doing the smart thing by investing in AI. If you read Corey Quinn, an analyst who writes for us about AWS – his main job is helping customers figure out AWS licensing and pricing – he dug into the earnings and part of what investors liked was AWS margins, but some of that margin was created by hedging on energy prices. It's very obtuse. All the big companies do these kinds of things; their treasury departments are always figuring out how to play games and maximize. It's perfectly legal and not fraud, or anything close to that, but it's not the core business. You have to back out this one-time energy price hedging strategy that worked to their advantage. Then you see that their margins are right where they were expected to...