Key Takeaways
- A record share of fund managers surveyed by Bank of America say companies are overinvesting in AI.
- Investor anxiety is weighing on shares of hyperscalers such as Microsoft and Amazon, and on software stocks more broadly.
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Professional investors are more anxious than they’ve ever been about AI’s big price tag.
A net 35% of fund managers surveyed by Bank of America earlier this month said companies are “overinvesting,” a record high and up sharply from 14% in December.
Big Tech is on pace to spend more than $600 billion on infrastructure—the majority of it dedicated to training and running AI—this year. Investors are increasingly concerned the tech giants will struggle to realize a return on their investment if AI demand or the industry’s economics don’t play out as expected. Those concerns have loomed over the stock market for several months, weighing on shares of hyperscalers like Microsoft (MSFT) and Amazon (AMZN).
Why This Matters
The scale of AI infrastructure spending is now large enough that a pullback in returns could ripple beyond tech stocks. For everyday investors, this shifts the AI story from pure growth to risk management.
Tech stocks were under pressure again on Tuesday, with Microsoft down about 1.5% in recent trading, while shares of Alphabet (GOOGL), Meta Platforms (META) and Tesla (TSLA) also lost ground. Software stocks, which have been hammered this year by anxiety about AI-driven disruption, continued to slump. The iShares Expanded Tech-Software Sector ETF (IGV) was down 3% and has shed nearly a quarter of its value since the start of the year.
Related Education
Investors say overspending on AI is a risk for more than just the tech companies footing the bill. Nearly one in three surveyed investors called “AI hyperscaler capex” the most likely source of a “systemic credit event,” the second-most common answer behind private equity/credit. And a quarter of respondents identified an AI bubble as the biggest risk to the stock market, making it the most common answer.