Investors are growing increasingly cautious about the stock market’s powerful artificial intelligence rally after senior figures in the industry called for a slower pace of AI development and greater attention to its risks.
The warnings have renewed concerns on Wall Street that the huge capital spending programme behind the AI boom could eventually lose momentum. Semiconductor stocks, which have been among the biggest beneficiaries of the spending surge, came under particularly heavy pressure on Monday.
AI companies and technology giants have committed hundreds of billions of dollars to building data centres, buying advanced chips and expanding computing capacity. That spending has supported corporate earnings and helped drive major stock indexes sharply higher.
But investors are now looking for evidence that the spending cycle remains intact.
Chuck Carlson, chief executive officer of Horizon Investment Services in Hammond, Indiana, said market concerns would become more serious if companies began cancelling orders, data-centre projects or construction agreements.
“I need to see something concrete that, in fact, there is a slowdown versus just talk,” Carlson said.
AI Safety Warnings Raise Questions
The latest concerns emerged after a series of warnings about the potential risks posed by increasingly powerful AI systems.
Anthropic chief executive Dario Amodei was among industry leaders calling for a slower pace of technological development to give governments and companies more time to address safety concerns.
A significant slowdown by major AI developers such as Anthropic and OpenAI could also raise questions about their future valuations, particularly as both companies are expected to consider public share offerings.
Carlson said that once such companies become publicly traded, shareholders would expect them to maintain strong growth, potentially creating pressure to continue expanding even as concerns over the pace of AI development increase.
Some investors, however, believe greater oversight could ultimately support the sector by making its long-term investment plans more credible.
Erik Kratz, chief investment officer and co-head of wealth at Arena Private Wealth in Chicago, said the construction of AI infrastructure was unlikely to stop simply because industry executives were calling for stronger safeguards.
“If anything, a credible safety framework makes the long-duration capex easier to underwrite,” Kratz said.
Chipmakers Bear the Brunt
The S&P 500 has gained more than 11% this year, with corporate earnings benefiting from several years of heavy investment in AI and related infrastructure.
The major technology companies driving the AI boom, including Microsoft, Alphabet, Amazon, Meta Platforms and Oracle, are expected to spend about $795 billion on capital expenditure in 2026, according to BofA Global Research. Their combined spending could rise to nearly $1.08 trillion in 2027.
A large portion of that money is flowing to semiconductor manufacturers and other companies supplying the hardware and infrastructure required to operate AI systems.
Those companies have enjoyed major gains in both profits and share prices, but they were also hit hardest by Monday’s sell-off.
The Philadelphia Semiconductor Index remains up nearly 60% for the year, despite the latest decline.
Kratz said semiconductor and other “picks-and-shovels” companies were particularly vulnerable because their fortunes are closely tied to the speed at which AI capabilities continue to improve.
Investors Also Watching Inflation and Rates
The latest sell-off has echoes of the market turmoil that followed the emergence of China’s DeepSeek AI model in early 2025. At the time, investors questioned whether the rapid development of more efficient AI models would reduce the need for massive spending on computing infrastructure.
That disruption proved temporary, and the AI investment trade quickly recovered.
This time, however, investors are considering a wider range of risks, including tighter government oversight, geopolitical tensions and changes in AI technology.
US President Donald Trump on Monday dismissed concerns about AI safety as a “hoax” and played down the need for regulation.
Kratz said the bigger danger for investors could be excessive regulatory intervention rather than a natural slowdown in technological development.
Michael Bruun, global co-head of private equity at Goldman Sachs Alternatives, said investors were assessing several uncertainties, including the direction of regulation, geopolitical tensions and the possibility of major changes in AI technology.
Despite those risks, Bruun said there were still opportunities to invest “into the epicenter of AI.”
AI Rally Faces Macroeconomic Pressure
The concerns come at a delicate moment for financial markets.
The S&P 500 and Nasdaq Composite are both only about 2% below their record highs, leaving investors with little room for disappointment if expectations surrounding AI spending weaken.
At the same time, higher bond yields, rising oil prices and uncertainty over the Federal Reserve’s interest-rate policy are adding to pressure on stocks.
James Humphries, managing partner at Mindset Wealth Management in Indianapolis, said AI semiconductor and infrastructure companies had been valued on the assumption that massive capital spending would continue with few interruptions.
He warned that any slowdown could expose the broader market to the economic pressures already weighing on investors.
“AI semiconductor and infrastructure stocks have long priced in an uninterrupted capex boom, leaving virtually zero margin of error for an industry-imposed speed limit,” Humphries said.
With inflation proving difficult to contain and the outlook for Federal Reserve policy uncertain, Humphries said a reduction in AI investment could remove one of the market’s main engines of growth and leave major stock indexes more exposed to wider economic risks.
SOURCE: Reuters
