The artificial-intelligence industry has triggered stock market upheaval that reveals two conflicting fears.
One concern is that AI is set to so profoundly transform entire economic sectors that investors are dumping shares of any company perceived to be at even minimal risk of being replaced by the technology.
The other worry is that the massive investments—hundreds of billions annually—that major tech corporations like Amazon.com Inc., Microsoft Inc., Meta Corp., and Alphabet Inc. are channeling into AI may not generate substantial returns in the near future.
These competing concerns have been building for months, but they’ve moved to the forefront of market attention in the last two weeks. This has triggered a wave of severe selloffs that have battered dozens of firms across various sectors—from real estate services and wealth management to insurance brokers and logistics companies—and erased over $1 trillion in market capitalization from the major tech giants that are the biggest AI investors.
“Investors’ AI concerns contain a fundamental contradiction,” said Julia Wang, chief investment officer for north Asia at Nomura International Wealth Management, in an interview with Bloomberg Television. “Both scenarios cannot simultaneously be true.”
This change represents a significant departure from the mood of recent years, when belief that AI would spark a revolutionary productivity surge continually drove share prices upward. Even as major tech stocks climbed—pushing Meta up nearly 450% from late 2022 to early this year and Alphabet up over 250%—anxieties about a potential bubble bursting failed to slow the rally.
This dynamic started shifting late last month when quarterly earnings from several tech behemoths began rattling investors, who are increasingly frustrated that the massive expenditures haven’t yet yielded matching revenue gains.
Just these four companies—Microsoft, Amazon, Meta, and Alphabet—are projected to allocate over $600 billion to capital expenditures in 2026. This is consuming their free cash flow and burdening them with depreciating assets, undermining many of the traits that powered their growth over the last ten years.
“We’re in a genuine lose-lose scenario,” commented Anthony Saglimbene, chief market strategist at Ameriprise Advisor Services. “Investors were fine with the idea that returns would materialize eventually, but now they’re demanding clearer timelines for payback—and those timelines remain murky.”
Following the fourth-quarter earnings season launch by Microsoft and Meta on January 28, shares of both Microsoft and Amazon have declined over 16%, with Amazon experiencing its most severe downturn in roughly two decades.
Even Alphabet, widely viewed as the biggest AI beneficiary among them, has slipped 11% from its recent high. Meta, despite robust revenue growth that outweighed concerns about elevated capital spending, has dropped 13% since its post-earnings surge. Collectively, these companies have shed nearly $1.5 trillion in market capitalization, dragging the tech-focused Nasdaq 100 Index into the red for the year.
Simultaneously, investors are becoming more anxious about enterprises that could be displaced—or at least profoundly disrupted—by the steady stream of new AI applications entering the market.
This has sparked repeated waves of stock market selloffs that have struck law firms, video game developers, and software firms, among other sectors.
The most recent selloff started when Anthropic PBC launched productivity tools for legal and financial professionals, crushing share prices across those sectors. Insurance brokers were hit by another OpenAI-linked program. A product from obscure startup Altruist Corp. pummeled companies like Charles Schwab Corp. and Morgan Stanley Inc. Even an announcement from a tiny firm with under $2 million in quarterly revenue caused logistics company stocks to plunge.
The market has witnessed prior AI-driven selloffs that eventually reversed, such as the panic triggered by Chinese firm DeepSeek in early 2024. Many view the current frantic selling as yet another overreaction—particularly since AI may ultimately make companies more efficient rather than rendering them obsolete.
“The cooling of the past few years’ euphoria has led to irrational behavior, with people now viewing AI as an economic drag,” said Bobby Ocampo, co-founder and managing partner at Blueprint Equity.
Nevertheless, he acknowledged that the core worries are valid. “Many AI-focused companies are trading at very aggressive valuations, but we’re still in a land-grab phase. Investors are beginning to understand these firms aren’t designed for near-term efficiency or profitability.”
The investment binge has clearly benefited recipients of this spending, such as Nvidia Corp. and memory chip manufacturer Micron Technology Inc., whose shares have skyrocketed over the last three years amid booming sales.
However, the massive sums that tech behemoths are funneling into AI have grown so large that doubts are mounting about the sustainability of this spending.
On Tuesday, UBS AG downgraded its rating on technology stocks from attractive to neutral, pointing to persistently high valuations and concerns that the current rate of capital expenditure by major tech firms—commonly called hyperscalers—is unsustainable.
“This magnitude of capital expenditure will absorb nearly 100% of hyperscalers’ operating cash flow, versus a ten-year historical average of 40%,” wrote Ulrike Hoffmann-Burchardi, chief investment officer for the Americas at UBS Wealth Management, in a client note. “That expenditure is increasingly financed through external debt or equity.”
Meanwhile, some remain skeptical of the anxieties that have shaken markets recently. Given AI’s relatively gradual commercial uptake, its ultimate impact on business transformation is still contested.
“It may require significant time for markets to break free from this doom loop and recognize that fundamentals remain solid, AI developers will profit, and more firms can boost revenue through AI adoption,” said Saglimbene of Ameriprise.
“Once the market becomes convinced these businesses aren’t facing extinction, it will understand that AI is a tool for enhanced profitability and that adopters will be rewarded. But we’ll likely experience ongoing volatility for some time to come.”