Insights

While the risk of a broad reassessment in hyperscaler AI capital expenditures is as high as it has been to date, the combination of historically strong S&P 500 sales and earnings growth and a large cohort of slower-moving investors suggests any deterioration in the AI narrative may take time to fully materialize.

At the same time, record bearish US stock bets continue to support the potential for a short squeeze before any meaningful correction, sustained recovery, or broader market decline, as positive options-related flows have thus far insulated the major equity indices from widespread contagion.

Evidence is mounting that investors are beginning to rotate away from AI providers and toward AI adopters as concerns grow around compute costs, margin compression, and the sustainability of current valuations. The recent semiconductor selloff, dubbed the “chip-wreck” across Wall Street, has reinforced this theme, even as the broader AI trade remains supported by powerful secular demand trends. 

At the same time, historic equity outperformance versus bonds is setting the stage for meaningful rebalancing flows, raising the probability of increased volatility and a deeper correction in risk assets over the coming weeks.

Despite near-term turbulence, the longer-term backdrop remains constructive. The ongoing transition to a multipolar world continues to generate durable demand for artificial…