AI's honeymoon phase starts to wear off for investors
Image: Michael Nagle
Wall Street's AI enthusiasm took a hit last week after mixed earnings reports from major tech companies raised fresh concerns about the enormous sums being poured into the technology.
The tech-heavy Nasdaq fell 2.9% Friday, its worst day since June, and closed out its weakest month in more than a year.
The week didn’t start out that way...Investors initially received reason for optimism as news of Anthropic's soaring revenue and potential IPO briefly revived excitement about the company's growth, as well as the prospect of more blockbuster AI stock-market debuts like OpenAI.
But that enthusiasm faded as a series of disappointing developments later in the week rattled investors:
- Alphabet shares plunged 13% on Thursday after Google's parent company reported slowing growth in its core search-advertising business, fueling concerns about the impact of AI-powered search.
- Amazon reported weaker-than-expected revenue and declining free cash flow after the closing bell Thursday. The news sent its stock temporarily down ~7% amid concerns about the financial pressure of its massive AI infrastructure investments, despite strong profits.
- Intel warned that rising memory-chip prices, driven partly by AI demand, could prolong a slowdown in PC sales, sending the tech giant’s shares down 29% Friday in their worst one-day performance on record.
The selloff spread across the tech sector Friday, dragging down Amazon, Alphabet, Nvidia, and Microsoft alongside chipmakers and companies building AI data centers.
Wall Street takes out an insurance policy
The mounting uncertainty has investors increasingly seeking protection against losses on their AI investments, fueling demand for financial contracts that can pay off when share prices fall or companies default on their debt.
- Investors have been buying put options tied to AI infrastructure provider CoreWeave, giving them the right to sell shares at a set price if the stock declines.
- Some traders are also developing contracts that would protect against falling rental rates for AI computing power, a potential risk for companies that have invested heavily in chips and data centers.
At the same time, the cost of insuring debt issued by Amazon, Alphabet, Microsoft, Meta, and Oracle against default has climbed over the past month to its highest level since 2021.
Zoom out: Despite the growing appetite for financial protection, companies are also beginning to report measurable returns from AI investments.
Meta recently credited AI with additional advertising revenue, while Google Cloud's quarterly revenue more than doubled to ~$31 billion, highlighting continued demand for AI infrastructure.
📊 Flash poll: In your opinion, is the US economy currently in an AI bubble that will “pop” in the near future?
See a 360° view of what pundits are saying →
Sprinkles from the Left
- Some commentators argue that Anthropic's blockbuster IPO highlights the enormous economic gamble behind the AI boom, with companies committing hundreds of billions of dollars to computing power and infrastructure in pursuit of major technological breakthroughs. They argue that while AI could deliver significant economic benefits, the public deserves a say in whether those potential gains justify the massive investments and resources required to achieve them.
- Others contend that AI's growing role in cybersecurity could boost tech companies' profits without delivering meaningful benefits to the broader economy, since businesses are spending more money protecting themselves rather than creating new value. They argue that because AI makes it easier for both hackers and defenders to find security flaws, companies could be forced into an expensive cycle of buying increasingly powerful AI tools just to keep up with the threats.
- “ The Open Secret Buried in Anthropic’s 300-Page I.P.O. Filing” –Paul Ford, NY Times
- “What’s Good for AI May Not Be Good for the US Economy” –Gautam Mukunda, Bloomberg
- “Will the AI Bubble Burst in the Face of the Working Class?” –Thom Hartmann, Common Dreams
Sprinkles from the Right
- Some commentators argue that the recent selloff in AI stocks is a reminder that the industry's massive investments will eventually need to generate substantial profits to justify their costs. They argue that while AI could deliver major economic benefits, not every company will succeed, and investors and regulators must remain alert to the financial risks that could emerge if expectations fall short, particularly as more investments are financed through debt.
- Others contend that government restrictions on AI development pose a greater threat to economic growth than concerns about a potential investment bubble, as unnecessary barriers could slow innovation and limit the industry's long-term benefits. They argue that financial markets should determine which AI investments succeed or fail, allowing investors to bear the risks rather than having government officials decide which projects are worth pursuing.
- “The Market’s Rude Reminder on AI” –WSJ Editorial Board
- “Let markets, not government, decide whether there’s an AI bubble” –WaPo Editorial Board
- “The foolish AI stock freak-out” –James Rogan, Washington Examiner
Share this!
Recent Discussion stories
Discussion
| October 30, 2026Alaska Senate race delivers October surprise
Strategists linked to Democrat Mary Peltola reportedly recruited a candidate sharing Republican Sen. Dan Sullivan’s name to potentially divert votes from him, according to a New York Times investigation.
Discussion
| October 28, 2026Election scrutiny heats up with midterms fast approaching
The Trump administration has recently increased its scrutiny of election procedures in several states, as the countdown to Election Day (next Tuesday) reaches less than one week.
Discussion
| October 26, 2026Iran ramps up plans to target Americans, which could renew fighting
Iran is stepping up efforts to target US officials abroad, according to a new intelligence memo first obtained by Axios.
You've made it this far...
Let's make our relationship official, no 💍 or elaborate proposal required. Learn and stay entertained, for free.👇
All of our news is 100% free and you can unsubscribe anytime; the quiz takes ~10 seconds to complete