Market professionals are growing increasingly concerned about the artificial intelligence (AI) trade following a week of significant data points in the technology sector. Investors are scrutinizing the scale of AI infrastructure development and whether returns are materializing quickly enough to justify the massive investments. While the broader stock market, fueled by the AI boom, remains strong with the S&P 500 near record highs, AI-related shares are either in a bear market or on the brink of one.
This week, frontier algorithm maker Anthropic’s public filing document lacked detailed information on forthcoming revenues, raising alarms after the company reported a slowdown in sales from the second to the third quarter. Meanwhile, major tech companies, known as hyperscalers, are scaling back their capital expenditures, indicating they foresee a saturation point in required computing power. Investors and traders argue that AI must now demonstrate substantial profits to justify the extensive buildout that has occurred and is still underway.
On Friday, AI-linked technology stocks faced significant declines. Intel dropped 25% due to weak revenue guidance, Micron fell 5.5%, and Nvidia lost 4%. Hyperscalers also suffered, with Amazon down 2% and Google down another 1%, marking Google’s worst trading day ever after reporting a decline in core advertising sales revenues. Technology investors expressed caution about the AI trade, with Mike Khouw, YieldMax strategist, noting that the market may experience further volatility.
Options specialists reported a shift in investor behavior, with more individuals seeking downside insurance. Historically, tech stocks have favored upside calls, but this trend has reversed in recent days. Dennis Davitt, CIO and co-founder of Millbank Dartmoor Portsmouth, observed that while investors may be hesitant about big tech companies tied to the AI trade, they are gaining confidence in the commercial prospects of AI technology itself, particularly with new consumer agents like Meta’s Muse.