The AI hype has worsened as investors worry about the technology’s disruptive impact on businesses and the economy, leaving markets nervous about where panic will strike next.
The technology sector has been the hardest hit. Concerns over the software divestment caused by Anthropic’s recent updates and the labor market disaster scenario presented by Citrini only add fuel to the fire. Even Nvidia’s earnings couldn’t shake investors out of their AI fear funk.
Business Insider spoke to three investment experts to assess the question weighing on investors’ minds: “What’s next for AI trading?”
“In some ways I’m surprised that stocks have fallen so sharply,” John Belton, a portfolio manager at Gabelli, which focuses on growth stocks, told Business Insider.
“Everyone is kind of walking a tightrope, waiting for the shoe to drop,” said Daniel Newman, CEO and principal analyst at Futurum.
Paul Meeks, head of tech research at Freedom Capital Markets with more than 30 years of investing experience, said he has gone from expecting tech to outperform in 2026 to expecting the sector to lag the broader S&P 500.
Here are four key takeaways from top investment experts.
Personal credit has a “death bomb”
The private credit sector has received a lot of attention from investors, and Newman said he believes there is reason to be concerned.
“I think there’s still a bit of a death bomb in private credit,” the analyst said.
“We’re going through a similar situation at Oracle, where we’re just concerned about how we’re going to continue to finance our capital spending,” he added, noting that private debt could cause a short-term economic slowdown.
Headlines about Blue Owl Capital reignite concerns about private credit, The Economist Mohamed El-Erian JPMorgan’s Jamie Dimon said he thought the headlines surrounding the company were reminiscent of 2007, just before the Great Financial Crisis.
Concerns about Blue Owl are compounding other fears in the market as software problems raise concerns in the data center space.
“The argument that AI will never make money will continue to be debated,” said Paul Meeks, predicting continued pressure on lenders who finance AI construction.
“The reason they’re getting the business is because there are people who can’t borrow money from banks,” the analyst said of the private lending market.
Major banks are also not clear.
While investors are focused on Blue Owl and other companies’ exposure to AI, big banks are not immune, the people said.
Large financial institutions have also been greedy for private credit in recent years, syndicating debt in the leveraged loan market and promoting financing through CLOs.
Mr Meeks suggested banks could be particularly vulnerable to investor concerns, indicating increased stress compared to 2007.
In addition to private credit, banks themselves are at risk of being disrupted by AI.
“Maybe banks are just a broader disruptive candidate that hasn’t really been incorporated yet. So banks are exposed to the labor market, and it’s not like a new AI company setting up a bank, but if the labor market changes, they’ll be exposed indirectly,” Belton added.
He suggested that the market may not have priced in the banking industry’s exposure to AI in many ways, noting that the current environment is “very favorable” for banks, with stock valuations inflated.
‘Blistering’ physical AI could transform industries
Physical AI, or AI systems that interact in the physical world, such as autonomous machines or self-driving cars, is expected to become an important frontier of technology.
Citi predicts that the total addressable market for warehouse automation systems alone will grow to $112 billion by 2029. Analysts say automated guided vehicles and autonomous mobile robots present important use cases for physical AI.
Paul Meeks predicts that opportunities for physical AI will grow “rapidly and furiously.” He said it represents a huge opportunity for companies that successfully implement it, and a “super threat” for those that don’t.
The analyst flagged the industrial and transportation sectors as areas of the stock market that could be disrupted by physical AI innovations.
As investors move away from technology, the ongoing rotation into cyclical market movements is accelerating. This rotation could further expose investors to physical AI disruption within the industry.
Belton suggested that the current preference for cyclical stocks such as consumer staples and industrials could backfire, saying some stocks are perceived to be “AI-proof,” pushing up valuations.
If AI fosters major economic disruption, it will create a “vulnerable segment of the market.”
Software falls further
Software has been one of the sectors hardest hit by the recent sell-off in technology stocks. Newman expects the subsector to recover, but it won’t be an even recovery.
He believes application software companies that went public during the SaaS boom and focused on specific features are likely to be consolidated into larger platforms or eliminated altogether. He cited Expensify and Monday as examples.
Newman sees software names that don’t have a data moat, are not part of a larger platform, or are exposed to AI replacement by agents at risk of further decline before sentiment recovers.
