san francisco – Three years have passed since then.
OpenAI sparks excitement about artificial intelligence (AI) with release of ChatGPT
. Money is still flowing in, but questions remain as to whether the good times will continue.
Signs of skepticism are growing, from the recent plunge in Nvidia stock to Oracle's plunge after reporting increased spending on AI, to the souring sentiment around corporate networks exposed to OpenAI. Looking ahead to 2026, the debate among investors is whether to curb their exposure to AI ahead of a potential bubble burst, or double down to take advantage of game-changing technology.
“We're at the rubber-meets-road stage of the cycle,” said Jim Morrow, chief executive officer of Carodyne Capital Management. “It's a good story, but at the moment we're preparing to see if it's a good return on investment.”
The concerns about AI trading revolve around its use, the huge costs involved in developing AI, and whether consumers will ultimately pay for the service. Those answers will have a huge impact on the future of the stock market.
The S&P 500's US$30 trillion (S$38.7 trillion) rise in three years has been largely driven by the world's biggest tech companies such as Alphabet and Microsoft, as well as companies benefiting from spending on AI infrastructure such as chipmakers Nvidia and Broadcom, and power companies such as Constellation Energy. If the rally stops, stock indexes will likely follow suit.
“These stocks are not going to correct because the growth rate will be lower,” said Sameer Bhasin, principal at Value Point Capital. “If growth doesn't accelerate any further, these stocks will correct.”
Of course, there are still many reasons to be optimistic. The tech giants that account for the bulk of AI spending have vast resources and are pledging to keep injecting cash into the coming years. Additionally, developers of AI services, such as Alphabet's Google, continue to make progress with new models. Therefore, it becomes a debate.
Here's a look at the key trends to keep an eye on when navigating choppy waters.
access to capital
OpenAI alone plans to spend US$1.4 trillion over the next few years. But Sam Altman's company, which became the world's most valuable startup in October, generates revenue far below its operating costs. It expects to burn US$115 billion by 2029 before generating cash in 2030, The Information reported in September.
The company has had no trouble raising money so far, raising $40 billion from SoftBank Group and other investors earlier this year. 2025. Nvidia pledged to invest as much as $100 billion in September, one of a series of deals the chipmaker has made to provide financing to customers, raising concerns about circular financing in the AI industry.
OpenAI could run into trouble if investors become hesitant to raise capital. And the impact will be felt by companies in its orbit, such as computing service provider CoreWeave.
“When you think about how much money, now in the trillions of dollars, is tied up in a small group of themes and names, at the first sign of that theme, even if you're in short-term stocks or valuations get too high to sustain that kind of growth, you're all going to leave in droves,” said Eric Clark, portfolio manager at Rational Dynamic Brands Fund.
Many other companies rely on external funding to pursue their AI ambitions. Oracle's stock price soared as it piled up reservations for its cloud computing services, but building those data centers required huge amounts of cash, and the company sold tens of billions of dollars in corporate bonds to secure funding. Using debt puts pressure on companies because unlike equity investors, who profit primarily from rising stock prices, bondholders have to pay in cash on a schedule.
Oracle stock soared on Dec. 11 after the company reported significantly higher-than-expected capital spending in its fiscal second quarter and cloud revenue growth was lower than analysts' average expectations. On Dec. 12, Oracle shares fell further on reports that some data center projects the company is developing for OpenAI have been delayed, weighing on other stocks exposed to AI infrastructure. Meanwhile, Oracle's credit risk index reached its highest level since 2009.
An Oracle spokesperson said in a statement that the company remains confident in its ability to meet its obligations and future expansion plans.
“The credit guys are smarter than the equity guys. At least they're concerned about the right thing, which is getting their money back,” said Kim Forrest, chief investment officer at Boke Capital Partners.
big tech spending
Alphabet, Microsoft, Amazon.com, and Meta Platforms are expected to spend more than $400 billion in capital expenditures over the next 12 months, most of which will go to data centers. These companies are seeing increased AI-related revenue from their cloud computing and advertising businesses, but it's not matching the costs they're incurring.
“If growth projections plateau or slow down, you're going to find yourself in a situation where the market says, 'Okay, here's a problem,'” said Michael O'Rourke, chief market strategist at Jones Trading.
The Magnificent Seven tech giants, which also include Apple, Nvidia and Tesla, are expected to have 18% profit growth in 2026, the lowest in four years and slightly better than the S&P 500, according to data compiled by Bloomberg Intelligence.
Increased depreciation costs due to data center abuse is a major concern. Alphabet, Microsoft, and Meta's depreciation costs will total approximately USD 10 billion in the final quarter of 2023. This figure increased to approximately US$22 billion in the quarter just ended in September. And it's expected to be around $30 billion by this time next year.
All of this could put pressure on share buybacks and dividends, which return cash to shareholders. Meta and Microsoft are expected to have negative free cash flow in 2026, after factoring in shareholder returns, while Alphabet is expected to be close to breaking even, according to data compiled by Bloomberg Intelligence.
Perhaps the biggest concern with all spending is the change in strategy it represents. Big Tech's value has long been premised on its companies' ability to generate rapid revenue growth at low costs, resulting in massive free cash flows. But their plans for AI turned that on its head.
“If we continue to build on the company in hopes of being able to monetize this, the multiple will shrink,” O'Rourke said. “If things hadn't come together, this whole turnaround would have been a grave mistake.”
rational vitality
While the valuations of Big Tech companies are high, they are by no means exaggerated compared to past market euphoria. Comparisons to the dot-com bust are common, but the magnitude of the gains from AI is incomparable to what happened during the development of the Internet. For example, the tech-heavy Nasdaq 100 index trades at 26 times expected earnings, according to data compiled by Bloomberg. This number was over 80 times higher at the height of the dot-com bubble.
Valuations in the dot-com era were much higher than they are today. That's partly because of how long the stock price lasted, but also because the companies were young and unprofitable, if profitable at all.
“These are not dot-com stock multiples,” said Tony DeSpirito, global chief investment officer and fundamental equity portfolio manager at BlackRock. “This isn't to say that some speculation and irrational enthusiasm doesn't exist. It does, but I don't think there's any enthusiasm in Mag 7's AI-related name.”
Palantir Technologies is one of the AI stocks with a nosebleed valuation, trading at more than 180 times estimated earnings. Snowflake is another company trading at nearly 140 times forward earnings. But Nvidia, Alphabet, and Microsoft are all under 30x, which is a relatively tame number considering all the excitement surrounding them.
All this leaves investors confused. Yes, risks are just coming to the fore even as investors continue to flood into AI stocks. But so far, most companies' stock prices have not reached panic-inducing levels. The question is what direction will AI trade take in the future?
“This kind of groupthink is going to collapse,” Value Point's Bhasin said. “There probably won't be a crash like there was in 2000. But there will be a rotation.” bloomberg
