CNBC: Investors increasingly focus on AI risks
The investment narrative around artificial intelligence has shifted from nearly unlimited expectations to greater attention to risks, according to CNBC columnist Mike Santoli. In his view, the technology can still generate returns, but the period when it was easy to identify market winners has ended.
Santoli noted that semiconductor makers’ shares, even before Monday’s 4% decline, were trading about 20% below their June highs. At the same time, the S&P 500 technology sector’s forward price-to-earnings ratio fell from 29 to 21 over the year. In the author’s assessment, the market is not ready to extrapolate the current surge in earnings without a clearer path to substantial free cash flows.
Doubts about demand
Spending on data centers, demand prospects for computing capacity, and order backlog forecasts beyond several quarters have become central to the discussion. According to Santoli, talk of a potential restraint in the pace of AI infrastructure buildout complicates arguments that 2027 earnings forecasts, heavily dependent on the semiconductor industry, are too low.
The author also pointed out that public skepticism about AI and assumptions of temporary margin expansion could prompt investors to revise expectations for the speed at which automation will displace established businesses.
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Market rotation
At the same time, Santoli called the cooling of speculative fervor a positive factor. The decline in high-momentum stocks since June, especially shares of companies connected with AI equipment and industrials, has weakened traders’ optimism and brought market sentiment closer to neutral levels.
Shares of Microsoft, Alphabet, and Meta, which are making substantial capital expenditures on AI, posted gains on Monday. In the author’s view, a possible slowdown could give these companies a pause before further accelerating capital raising and deployment. Investors are also showing demand for companies with substantial free cash flows: the VictoryShares Free Cash Flow ETF has outperformed the S&P 500 in recent months, where the so-called Magnificent Seven carry significant weight.
Santoli compared certain macroeconomic conditions with the late 1990s, when the technology investment boom coincided with Federal Reserve rate hikes. At the same time, he cautioned against directly applying the 1999–2000 scenario to the current market.
