Investors were confronted this past week with four difficult realities that may fundamentally change the way they think about AI the business vs. AI the technology:
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🗑️ It’s not paying off nearly as much as companies expected, per a new Bain study.
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⛅️ Infrastructure demand is strong — but not as strong as the most optimistic wanted, as Broadcom showed with its “weak” forecast.
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🏦 Financing that infrastructure is going to be more expensive for longer, with signs pointing to the Fed raising, not lowering, interest rates.
Why it matters: Those realities challenge assumptions that powered markets to historic heights over the past few years. It’s hard to justify chip or memory stocks rising 1,000%+ in a year if the boom isn’t what everyone assumed.
The big picture: The costs of AI are now. The profits are later — maybe.
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That “maybe” is what’s making people nervous.
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AI the technology has a bright future. But AI the business is starting to look like a bottomless pit — especially amid news that even some of the world’s biggest companies are rushing to sell historic (and dilutive) amounts of stock to justify their expansion.
By the numbers: The market sold off Friday amid those jitters, with the tech-laden Nasdaq having its worst day in 14 months.
Friction point: Tech selling off weighs down everything else.
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As charts expert Matt Cerminaro (a.k.a. “Chart Kid Matt”) noted Friday, the S&P 500 was down more than 2%, even though the majority of stocks in the index were actually up on the day.
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The last time that happened? April 12, 2000, as the dot-com bubble was collapsing.
Annex Wealth Management chief economic strategist Brian Jacobsen wrote Friday morning: “Recent earnings reactions suggest that even outstanding growth isn’t always enough when expectations are stretched — a classic ‘priced for perfection’ dynamic.”
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“But not everything is priced that way,” he added. “There are still areas where expectations are more reasonable, and valuations offer a cushion.”
What’s next: It’s not clear if Friday was signal or noise, but we’ll know soon.
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Asian stock markets will open Sunday evening U.S. time and should quickly reflect whether investors are feeling panicked or opportunistic.
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Then there’s the not-so-small matter of the SpaceX IPO, the largest in history, expected this week. Early signs that the offering is oversubscribed suggest there could be a clamor for the stock when it hits the market.
