Investors are becoming more selective in allocating capital to artificial intelligence-related stocks, as soaring capital expenditures, rising debt loads and doubts over profit prospects reshape the global AI investment narrative.

Major technology firms are planning hundreds of billions of dollars in AI infrastructure spending this year, but markets are grappling with the cost implications and uncertain returns.

Equity flows have started to diverge across regions and sectors, with some AI-linked equities outperforming while others lag amid rotation pressures. Traders said this fracture in the AI trade reflects a broader reassessment of risk and reward across the tech landscape.

Concerns over potential disruption to legacy software and data firms are compounding market jitters, as investors weigh whether AI advancements will cannibalise existing business models.

Shares of data analytics and software companies have seen selling pressure as the market digests the massive AI capex plans of hyperscale firms. Traditional tech sectors are particularly sensitive to narratives about disruption and spending efficiency.

Big tech capital expenditure plans, estimated at over $600 billion for 2026 by major firms have intensified debate among investors over profit sustainability versus growth investment.

While cloud and AI infrastructure expansion could drive future earnings, near-term pressures on cash flows and margins have clouded sentiment.

Analysts say markets are increasingly bifurcated between long-term AI believers and cautious allocators prioritising fundamentals.

Regional variations in tech performance underscore how global equity markets are reacting differently to AI expectations. U.S. benchmarks have shown rotation within the tech sector, while European and Asian markets reflect mixed flows tied to local demand and differential exposure to AI-centric firms.

Traders also pointed to currency and rate expectations as factors shaping sector performance.

Looking ahead, upcoming earnings reports and data on capital spending will be key tests for the durability of AI investment narratives, with markets poised for volatility as investors calibrate expectations on profitability versus deployment scale.

Source: Reuters