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There were bearish undercurrents in the bullish sea.
While there are many reasons to be optimistic about the long-term prospects for U.S. stocks, investor concerns about artificial intelligence (AI) spending and the possibility of a market correction roiled markets last week.
“All eyes were on the parade of earnings reports from the technology behemoths this past week. But what grabbed the markets’ attention were the implications of their massive capital investments in artificial intelligence on their balance sheets and cash-flow statements,” reported Randall W. Forsyth of Barron’s.
Investors wondered whether and when the enormous amounts of money companies are committing to AI data centers will generate a return, according to John Miley of Kiplinger’s. In addition, there were questions about whether these investments are economically sustainable.
“To meet the expected demand for data centers, it will require $500 billion in annual global capex spending on new data centers…AI companies will have to find $2 trillion in new yearly revenue by 2030 to arrive at an economically sustainable model,” reported Miley.
Investor caution was heightened when the chief financial officer of one large AI research and deployment company suggested the government “backstop the guarantee that allows the financing [for AI data centers] to happen,” reported Bloomberg.
Another sustainability issue is energy usage. AI data centers consume a lot of power. Increasing demand is pushing energy prices higher, and they could go even higher as utilities upgrade power grids to meet new energy demands, reported Pew Research.
“It seems like we have finally reached the point of maximum optimism around artificial intelligence,” commented a source cited by Carmen Reinicke, Alexandra Semenove, and James Crombie of Bloomberg.
While that may prove true, there are many reasons to remain enthusiastic about AI. Advancements in the field have the potential to deliver gains in automation, decision-making, efficiency, and innovation that could reduce costs across diverse industries and generate immense wealth. Already, excitement about AI has “added trillions of dollars to the equity market’s value,” reported Phil Serafino, Carmen Reinicke, and James Crombie of Bloomberg.
AI spending was not the only issue that gave investors pause last week. Other concerns included consumer sentiment hitting a three-year low and the government shutdown having a negative effect on the U.S. economy, reported Jeff Cox of CNBC.
Major U.S. stock indexes gained a bit on Friday but finished the week lower. In addition, yields on most maturities of U.S. Treasuries moved lower over the week.
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