Kristina Roberts
The excitement around Artificial Intelligence (AI) has pushed the U.S. stock market to new record highs. Since the release of ChatGPT in late 2022, investors have been filled with hope about how AI could change the world and make huge profits. But now, some experts are warning that there might be risks hidden beneath this excitement. As companies begin to share their third-quarter earnings, investors are carefully watching to see if the AI dream will continue smoothly or face bumps along the road.
AI has become the main topic on Wall Street, influencing nearly every major business decision. According to Citigroup strategists, about half of the total market value of the S&P 500 companies—roughly $57 trillion—is connected to AI in one way or another. This means that AI is not just shaping the future of technology companies but also affecting the entire stock market. The S&P 500 index has risen by around 13% this year, while the technology-focused Nasdaq Composite has climbed 17%. These numbers show how much confidence investors have in AI’s potential to boost profits.
“So much of what is holding up the markets is either directly or indirectly related to that trade,” said Yung-Yu Ma, chief investment strategist at PNC Financial Services Group. His statement points out how deeply the success of the market now depends on AI-related investments. However, history shows that when one trend becomes too powerful, it can also become risky.
There have already been moments when technology and AI stocks have faced sudden drops. Early this year, a Chinese company introduced a cheaper AI model called Deepseek. This sent shockwaves through global markets because it raised questions about the huge amounts of money American tech companies were spending on AI development. The fear was that if other countries could make AI cheaper, U.S. companies might not see the big profits they were hoping for. In August, similar concerns about spending caused another brief dip in tech stocks. Still, the AI trade managed to recover and continued to grow afterward.
“There is a huge opportunity here, but it really just comes down to what’s priced in and what’s not,” said Steve Lowe, chief investment strategist at Thrivent Financial. “There is a lot of growth priced in, and that is one of the concerns, because there are still a number of risks that could trip up people’s expectations.” His words highlight a key worry among investors: AI companies may already be valued too highly, meaning their stock prices might not rise much further unless they show even stronger growth.
Many investors are still hopeful about the future, as the S&P 500 enters its fourth year of a bull run—meaning the market has been rising steadily. But they are also being cautious. As big tech firms prepare to report their earnings, everyone is looking for any signs that could hint at slowing growth or falling profits.
One major area of focus is the huge amount of money being spent on AI infrastructure. These expenses, called capital expenditures or “capex,” are needed to build data centers, buy powerful chips, and create the tools required for AI systems to function. Big companies like Microsoft, Amazon, Google’s parent company Alphabet, Meta (the owner of Facebook and Instagram), and Oracle are leading this investment race. According to Barclays strategists, spending by these “hyperscaler” companies is expected to almost double between 2024 and 2027, reaching around $500 billion per year.
While these tech giants are known for generating enormous profits, investors are keeping a close eye on how much of that money is being reinvested into AI projects. Michael Arone, chief investment strategist for State Street Investment Management, explained that it’s important to check whether these companies are “spending faster than their growth rates and eating into their free cash flow margins.” In simple terms, if companies spend too quickly, they might harm their profit levels—even if their sales are increasing.
Investors are also watching to see if any of these big companies suddenly reduce their spending. A slowdown in investment could be a bad sign for AI’s future growth. Since AI development requires continuous innovation and improvements, stopping or slowing investment might delay new breakthroughs. As Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions, said, “The bigger risk is not investing too much; it is not investing enough right now.” His statement shows that while high spending can be risky, failing to invest could be even more dangerous in a fast-changing field like AI.
Another concern is whether the money poured into AI will actually produce good results. AI promises to make work faster and more efficient, but it’s still unclear how quickly companies will see profits from their investments. For example, many businesses are using AI to automate customer service, create advertisements, or analyze data—but these improvements might take years to fully pay off. If companies fail to show clear financial benefits soon, investors might lose confidence.
AI has also become a part of daily life in many industries, from healthcare to entertainment. But not every company can afford the same level of investment. Smaller businesses might struggle to keep up with giants like Microsoft or Amazon, creating an uneven playing field. If these smaller players fail to benefit from the AI revolution, it could widen the gap between large corporations and the rest of the market.
There are also fears about overdependence on AI. Some analysts say that the current excitement feels similar to the dot-com bubble of the early 2000s, when internet companies were valued far higher than they were worth, and many later collapsed. If AI fails to deliver the profits investors expect, the same thing could happen again.
Despite these concerns, AI continues to be one of the strongest forces driving financial markets. New innovations, smarter algorithms, and more efficient chips keep attracting attention. Investors believe AI could transform industries like finance, medicine, manufacturing, and education. Yet, as more money flows into AI, the risks also grow.
The next few months will be crucial. As companies release their financial results, investors will closely study every number—looking at revenue growth, spending rates, and returns from AI projects. The data will reveal whether AI is truly becoming the profit-making powerhouse everyone hopes it will be or if the excitement has outpaced reality.
