Ai Spending Is Slowing Down. How Will The S&P 500 React?

What Happened

Institutional bodies echo those doubts. The Bank for International Settlements warned earlier this year that Big Tech’s spending spree risks becoming a prolonged investment bust. The numbers behind that alert are substantial. The five largest hyperscalers are expected to deploy more than $1 trillion across 2025 and 2026.

Household exposure raises the stakes further. Ordinary investors now hold more stocks relative to their wealth than in past cycles, so any sharp drop would hit harder than the dot-com crash.

Morgan Stanley projects even larger flows. Its research points toward nearly $3 trillion of AI infrastructure investment by 2028, with over 80% still ahead.

BlackRock rejects the bubble framing outright. Today’s leaders generate real profits, maintain strong balance sheets, and largely fund investments from their own cash flow.

Market Context

Wall Street keeps setting records, yet a growing chorus of institutional voices now names artificial intelligence (AI) itself as the biggest threat facing global markets.

A tail risk is a low-probability event with severe consequences, the kind fund managers watch even when markets look calm. AI just claimed the top spot on that list.

The structural problem explains why the index matters. J.P. Morgan Global Research estimates that the top 20 stocks now account for roughly 50.8% of total market capitalization.

That concentration has no modern precedent. Half a century has passed since the index depended so heavily on so few companies. The practical implication is uncomfortable. Buying the market increasingly means buying the AI trade, regardless of how the remaining 480 companies perform.

Capital commitments keep expanding regardless. Goldman Sachs estimates annualized AI-related spending could exceed $800 billion by the end of 2026.

Summer has already delivered a stress test. The Nasdaq fell almost 10% from its June peak by late July before staging a near-9% rebound in early August to a new all-time high, according to TradingView data.

Extraordinary earnings are buying time for the AI trade. Whether returns eventually justify trillions in capital expenditure remains the question holding up the entire index.

If markets needed a case study of AI concentration risk, July delivered one. Situational Awareness, the hedge fund founded by former OpenAI researcher Leopold Aschenbrenner, grew to as much as $45 billion before steep losses on AI infrastructure stocks like SK Hynix forced it to sell its entire public portfolio to Ken Griffin’s Citadel.

Why It Matters

Bank of America’s July Global Fund Manager Survey found 45% of respondents naming an AI bubble as the biggest tail risk, up from 28% the previous month.

Respondents also flagged a specific trigger. Hyperscaler spending on AI infrastructure is ranked as the most likely source of a credit event.

Details

The S&P 500 sits at the center of that argument, and its concentration explains why.

Why Fund Managers Now Fear AI Most

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That figure displaced second-wave inflation from its first-place position. The same survey identified long positions in global semiconductors as the world’s most crowded trade.

Analyst Mac10 sharpened the warning on August 8. He argued that forward earnings growth is accelerating at a record pace only because companies are pouring unprecedented cash into artificial intelligence.

His concern centers on accounting mechanics. That spending often appears as a one-time boost on profit statements rather than sustainable operating performance.

What the S&P 500 Actually Reveals

Momentum names showed particular fragility. Sandisk and Western Digital, up roughly 396% and 145% year-to-date, both displayed sell-the-news vulnerability during earnings season.

The bull case rests on delivered results, however. Goldman Sachs found 64% of reporting S&P 500 companies beat consensus earnings by at least a standard deviation.

The Situational Awareness Collapse: A Warning Shot for the AI Trade