Markets have become so invested in the artificial intelligence trade that there is very little room for error if the massive spending doesn’t pay off, according to Citadel Securities. The selloff in technology stocks suggests investors are becoming more demanding about whether massive AI spending will ultimately generate sufficient profits, Nohsad Shah, Citadel’s head of EMEA fixed-income sales, wrote in a note.
“With so much of the economy and stock market now levered to the AI trade, there is precious little margin for error just as the other risks threaten to bite,” Shah wrote. The debate around the merits and dangers of the AI trade has been growing among prominent investors, with Citadel’s Ken Griffin warning of a bubble while Blackstone Inc. President Jon Gray saying there’s no cause for concern as demand is “almost parabolic.”
A sharp unwinding of AI bets sent technology stocks tumbling last week while risk-off signals in credit markets climbed to their highest in more than a year on concerns that rising borrowing costs are colliding with a multitude of global risks to complicate fund-raising efforts. Against this backdrop, Anthropic PBC filed for an initial public offering Monday, becoming the first company primarily focused on developing AI models to go public.
Tariffs, fiscal stimulus and elevated energy prices have made AI investments more expensive to finance and operate, while public opposition to data-center construction could slow projects and raise costs, Shah said. The US has so far been able to absorb those pressures because earnings and confidence remained strong. But a sustained retreat in AI investment and financing could threaten the growth and household wealth that have helped cushion the economy from higher costs, he said.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing