Investors are increasingly hesitant about stock prices linked to artificial intelligence (AI), as concerns intensify over the sustainability of the current market frenzy. Three years after the launch of ChatGPT ignited this surge, the market is grappling with a combination of significant expenditures, diminishing growth rates, and fears that recent gains may be disconnected from reality. High-profile firms like Nvidia have seen notable declines, while Oracle experienced a sharp drop following substantial AI-related costs. As speculation mounts about companies tied to OpenAI, the critical question heading into 2026 is whether investors should withdraw to avoid a potential bubble or remain invested for another rally.
“We’re in the phase of the cycle where the rubber meets the road,” said Jim Morrow of Callodine Capital Management. “It’s been a good story, but we’re sort of anteing up at this point to see whether the returns on investment are going to be good.” Investor unease centers on the practical applications of AI, the massive costs required to develop it, and whether end-users will be willing to pay for these innovations. The answers to these questions will significantly influence market dynamics moving forward.
The S&P 500’s remarkable three-year rise, which added approximately $30 trillion in value, has heavily relied on tech giants such as Alphabet, Microsoft, Nvidia, Broadcom, and Constellation Energy. A slowdown in any of these firms could reverberate throughout the entire index. According to Sameer Bhasin of Value Point Capital, “These stocks don’t correct because the growth rate goes down. These stocks correct when the growth rate doesn’t accelerate any further.”
OpenAI, one of the leading players in the AI space, intends to invest $1.4 trillion in upcoming years while projecting revenues that fall significantly short of covering costs. Reports suggest the company may incur losses of up to $115 billion through 2029 before achieving positive cash flow by 2030. Having already raised approximately $40 billion, which includes investments from firms like SoftBank, OpenAI’s funding strategies have led to discussions of circular financing with Nvidia, which pledged up to $100 billion in September.
If investor confidence wanes, the pressure could extend to companies associated with OpenAI, including CoreWeave. “If you think about how much money — it’s in the trillions now — is crowded into a small group of themes and names, when there’s the first hint of that theme even having short-term issues or just valuations get so stretched they can’t possibly continue to grow like that, they’re all leaving at once,” explained Eric Clark of The Rational Dynamic Brands Fund.
Oracle has also found itself reliant on external financing. Its stock saw a temporary boost due to rising cloud bookings, but constructing data centers demands heavy capital investment, leading to the issuance of tens of billions in bonds. This debt burden escalates pressure, as bondholders prioritize cash returns over rising stock prices. Following reports of increased capital spending and sluggish cloud growth, Oracle’s shares plummeted, further exacerbated by news of delays in OpenAI-linked data centers. The company’s credit risk has reached its highest level since 2009.
Despite these challenges, an Oracle spokesperson expressed confidence in the company’s plans, stating that “the credit people are smarter than the equity people, or at least they’re worried about the right thing — getting their money back,” according to Kim Forrest of Bokeh Capital Partners. Meanwhile, major tech firms such as Alphabet, Microsoft, Amazon, and Meta are projected to expend over $400 billion on capital projects in the next year, primarily on data centers. However, revenue generated from AI remains significantly lower than these escalating costs.
“Any plateauing of growth projections or decelerations, we’re going to wind up in a situation where the market says, ‘Ok, there’s an issue here,’” warned Michael O’Rourke of Jonestrading. Earnings growth for the seven largest tech companies, including Apple and Tesla, is expected to decelerate to 18% by 2026. As depreciation from data centers rises, it is projected to increase from roughly $10 billion in late 2023 to around $30 billion next year. This trend poses challenges for buybacks and dividends, with Meta and Microsoft expected to experience negative free cash flow after shareholder returns in 2026, while Alphabet is anticipated to break even.
The landscape for Big Tech is shifting dramatically, moving from a model based on rapid revenue growth at low costs to one reliant on significant upfront investments with the hope that AI will eventually deliver returns. “If we continue down the track of lever up our company to build out for the hopes that we can monetize this, multiples are going to contract. If things don’t come together for you, this whole pivot would have been a drastic mistake,” O’Rourke added.
While current valuations remain elevated, they are nowhere near the extremes of the dot-com era. The Nasdaq 100 currently trades at 26 times projected profits, significantly lower than the 80-plus valuations observed during the early 2000s bubble. Tony DeSpirito of BlackRock noted that while these are not dot-com multiples, certain stocks, such as Palantir at over 180 times estimated profits and Snowflake near 140, illustrate pockets of speculation. In contrast, Nvidia, Alphabet, and Microsoft trade under 30 times earnings.
As the market faces this inflection point, investors find themselves caught between fear and opportunity. While risks loom large, capital continues to flow, and the market has yet to factor in a panic scenario. “This kind of group thinking is going to crack. It probably won’t crash like it did in 2000. But we’ll see a rotation,” Bhasin concluded.
For more information on the companies mentioned, visit their official websites: Nvidia, Oracle, OpenAI, Alphabet, Microsoft, and Meta.
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