For the past six weeks or so, artificial intelligence has gone from market darling to market headache. Data center and power stocks—some of the biggest winners of the past two years—have fallen hard as investor confidence drained away and second-guessing took its place.
The concerns are real. Investors have been looking at the sheer scale of spending—more than $700 billion this year alone from Amazon, Meta, Microsoft and Alphabet—and wondering whether that has finally tipped from bold into reckless. They are questioning whether those four big buyers are overbuilding capacity that won't be needed, and whether the financing behind the AI boom is as solid as it looks.
But dig into those three fears, and each one looks a lot less scary than it first appears.
Fear one: runaway spending
The first worry is that the hyperscalers—the giant cloud and tech companies—are spending money on AI infrastructure with no end in sight. That spending has been a key driver of the market's recent gains, so if it slows, the whole trade could unwind.
Yet the companies themselves keep raising their capital expenditure plans, and their suppliers continue to book record orders. That suggests the spending is being driven by actual demand, not just hype. If the biggest buyers of AI chips and data centers are still willing to write bigger checks, the spending may be more rational than it looks from the outside.
Fear two: overbuilding
The second fear is that the industry is building too many data centers, too many chips, and too much power capacity—creating a glut that will eventually crush prices and profits.
That is a legitimate worry in any boom. But the counterargument is that cheaper, more efficient AI models—like the ones coming out of China—could actually increase overall demand. If AI becomes cheaper to run, more businesses will find ways to use it, which means more data centers, more chips and more power will be needed to handle the load. In other words, what looks like overbuilding today could be just the foundation for a much bigger market tomorrow.
Fear three: shaky financing
The third fear is about how all this is being paid for. Some AI infrastructure projects are being financed with debt, and if interest rates stay high or the projects don't generate enough revenue, the lenders could get burned.
But the real risk sits in the leveraged fringe—the smaller, heavily indebted players—not in the mega-cap buyers like Amazon or Microsoft, which have strong balance sheets and cash flows. The warning signs to watch are falling capital expenditure guidance from the big spenders, and widening credit spreads on AI-linked debt. If those start to move, that would be a signal that the financing worries are becoming real.
What it means for investors
For everyday investors, the recent selloff is a reminder that even the most exciting technologies go through rough patches. The key is to separate the signal from the noise.
If you own AI-related stocks or funds, the recent drop may feel uncomfortable, but it's worth remembering that the underlying demand for AI appears to be growing, not shrinking. The companies doing the spending are still raising their budgets, and the suppliers are still reporting record orders.
That doesn't mean every AI stock is a buy. The leveraged fringe is a real danger zone, and investors should be cautious about companies that are heavily in debt or dependent on a single customer. But for the mega-cap players and their suppliers, the fears driving the selloff may be more about sentiment than fundamentals.
As always, it's important to keep a long-term perspective and not let short-term market swings dictate your decisions. The AI story is still being written, and the next few quarters will tell us whether the spending was justified or excessive. Watch the capex guidance and the credit markets for clues.
For more on how AI and tech worries are affecting markets, see our recent piece on Korea's stock bounce fading and CoreWeave's expansion into Indonesia.
