The AI frenzy gets a reality check
Markets are starting to ask whether AI revenue can justify a trillion-dollar build-out increasingly funded by debt and circular deals.
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Microsoft’s chief executive, Satya Nadella, warned in 2025 that the company might end up with “a bunch of chips sitting in inventory that I can’t plug in”.
PHOTO: REUTERS
The initial euphoria over artificial intelligence has hit a speed bump. For the past three years, the market has treated every dollar spent on AI as a down payment on the future. But over the past month, it has started asking some hard questions. Shares in the hyperscalers – Microsoft, Alphabet, Amazon and Meta – have fallen, and the selling has spread to the chipmakers and cloud providers that supply them.
The S&P 500, which is heavily weighted towards the hyperscalers and chipmaker Nvidia, is barely above its August peak. In the month to Oct 23, the Philadelphia Semiconductor Index was down 14%. The biggest listed specialist AI cloud provider, CoreWeave, has lost more than 38%. Meanwhile, Treasury bonds, the classic safe haven for investors, have rallied despite rising inflation, which normally leads them to fall.