AI promise meets market reality

Investors are discovering that the artificial intelligence landscape is not just fertile ground for stocks — it is also a minefield.

- LEWIS KRAUSKOPF

AI letters and a robot hand are placed on a computer motherboard in this illustration created on June 23, 2023. REUTERS

(REUTERS)

Enthusiasm about AI's profitability has fuelled the US bull market, with stock gains for technology companies and others tied to the build-out of data centres and related infrastructure. Many investors have also pointed to 2026 as the year AI will start boosting bottom lines more broadly, as companies see productivity benefits.

But recent concerns over the technology’s disruptive potential are rattling industries, including software, legal services and wealth management, as investors rethink how to value those businesses.

Questions over massive AI capital spending are pressuring the share prices of some of the world’s biggest companies, including Amazon.com and Microsoft.

“You've clearly seen that breakdown in terms of the monolithic AI trade,’ said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions. “You're going to have these tug-of-war dynamics in a lot of the bigger index weights, just by how the market’s rewarding perceived winners and losers in the Al race.”