Investors are showing growing anxiety about the AI-driven stock market rally after industry leaders called for a slowdown in development pace. Some experts, however, believe that imposing restrictions could ultimately benefit the sector.
Following warnings that AI could threaten humanity, AI leaders over the weekend, including Anthropic CEO Dario Amodei, called for a deceleration of progress to buy time to manage risks.
Massive investments by tech giants in AI data centers have driven up stock prices across many companies, contributing to more than doubling the S&P 500 index since the bull market began in October 2022. Wall Street is closely watching for any signs that these expenditures, expected to reach nearly $800 billion by 2026, might weaken.
Chuck Carlson, CEO of Horizon Investment Services in Indiana, USA, noted: 'It becomes a problem if you truly see order cancellations, data center construction deal cancellations.' He added that he needs concrete evidence of a slowdown, not just talk.
A forced pause from leading AI developers like OpenAI and Anthropic could raise questions about the valuations of these two companies, both of which are expected to go public in the future. Carlson emphasized that since they will eventually become public, 'shareholders will demand continued growth' from them.
The overall market index has grown by more than 11% this year, supported by profit growth based on significant spending in recent years.
Hyperscaler Spending
According to BofA Global Research, AI hyperscalers—Microsoft, Alphabet, Amazon, Meta Platforms, and Oracle—are expected to spend about $795 billion on capital projects this year and nearly $1.08 trillion in 2027. This growth also affects IT budgets in South Africa, where Gartner forecasts local spending to rise by 19.8% this year to $28.1 billion.
A significant portion of global spending is directed toward semiconductor companies, whose stocks and profits have risen sharply this year but took the main hit during Monday's sell-off. The Philadelphia Semiconductor Index for the sector remains up almost 60% through 2026.
Eric Krautz, Chief Investment Officer and Co-Head of Wealth at Arena Private Wealth in Chicago, stated: 'Markets punish the mining layer more severely than the hyperscalers because it is the layer most susceptible to slowing down improvement rates.'
Krautz suggested that closer examination of industry safety standards could have a positive effect. He believes that 'construction won't stop because CEOs requested limitations. On the contrary, a reliable safety system facilitates underwriting long-term capital expenditures.'
This sudden dip reminded some investors of the market downturn in early 2025 following the emergence of China's DeepSeek model, which raised doubts about the pace of AI infrastructure spending. However, this sell-off proved to be a temporary blip for AI trading.
Investors are now assessing a much broader range of risks, including the possibility of increased government regulation, despite U.S. President Donald Trump stating on Monday that AI security threats are 'nonsense' and downplaying the need for rules.
Krautz noted: 'The real risk is not that development will actually slow down, but an excessive regulatory reaction.'
Growth problems may not halt the investment boom, but several factors could influence the pace of AI development. Michael Brun, Global Co-Head of Private Equity at Goldman Sachs Alternatives, reported that investors are determining whether there will be 'more or less regulation, more or less geopolitical tension, and whether new paradigms are emerging in technology.'
Nevertheless, Brun sees opportunities to deploy capital 'in the epicenter of AI.'
If doubts about AI increase, stock prices could become vulnerable. The S&P 500 and Nasdaq Composite indices are only 2% below record highs, and the market faces higher bond yields, rising oil prices, and the possibility of the U.S. Federal Reserve raising interest rates this week to curb inflation.
James Humphries, Managing Partner of Mindset Wealth Management in Indianapolis, Indiana, stated: 'Semiconductor and AI infrastructure stocks have long factored in an uninterrupted boom in capital expenditures, leaving virtually no buffer for industry-imposed speed constraints.' He continued: 'If the market is already grappling with stickier-than-expected inflation and an uncertain path from the Fed, constraining the market's primary growth engine leaves broader indices completely exposed to these macroeconomic difficulties.'