AI-Driven Market Rally Faces Growing Scrutiny as Costs and Risks Emerge
Investor euphoria around artificial intelligence has propelled U.S. equities to unprecedented heights, with the S&P 500 gaining 13% year-to-date and the Nasdaq Composite climbing 17%. Nearly half the S&P 500's $57 trillion market cap now carries significant AI exposure, according to Citigroup estimates. The ChatGPT revolution since November 2022 has cemented AI as the dominant market narrative.
Yet cracks are appearing in the AI investment thesis. Wall Street's three-year AI frenzy, which added trillions in market value, now faces sober reassessment. Capital expenditures and energy demands for AI infrastructure are emerging as material risks. "What's holding up the markets is directly or indirectly tied to this trade," observes PNC's Yung-Yu Ma, highlighting the market's precarious dependence on continued AI optimism.
