1. AI has sent stocks soaring
The S&P 500, which tracks the 500 biggest US companies, has been on a tear over the past five years – rising by nearly 80%. That jump has been driven by big tech stocks with a stake in the AI boom, the “magnificent seven” of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla.
The investor concentration on technology is unprecedented, says Jim Bianco of the US company Bianco Research, which found that 41 AI-related stocks now account for nearly half the S&P 500’s market value.
Neil Wilson, an analyst at the investment platform Saxo UK, says the prospect of a 1970s-style inflation shock, lofty tech valuations in general and a potential freeze in the private credit market do not bode well for stocks.
“The entire market has become one giant AI edifice,” he says. “The danger is a repeat of the dotcom bubble – a huge crash, and years of lost returns. By some measures valuations aren’t as stretched as then but this looks like an incredibly dangerous market.”
2. Expenditure is growing at a staggering rate
Spending on AI – from datacentres to chips – is racing ahead, from $765bn this year to $1.6tn in 2031, according to Goldman Sachs. The investment bank acknowledges there could be problems with this scale of commitment. What if the datacentres are delayed?
“At the scale of capital being committed, even modest delays in execution invite real scrutiny around the demand assumptions used to underwrite these investments,” say Goldman analysts, although they add that if the spending plans go ahead without hitches, it could unleash a new wave of AI demand. Nonetheless, the expenditure shows how much global financial resource, and expectation for a return, is being committed to AI.
3. Firms and consumers are adopting AI at pace
Despite mixed reports on the benefits, the vast majority of companies are starting to use AI – up from 33% in 2023 to nearly 80% now, according to the consultancy group McKinsey. Usage among the general public is also high, with OpenAI’s ChatGPT now reaching 1bn monthly active users, according to data from Sensor Tower – a record for any app.
The question now for AI developers is how to make money from this vast public and private customer base. Companies need to be able to demonstrate that AI improves outcomes and reduces their costs enough to warrant the bill. That means using it to build entire workflows – business jargon for carrying out an entire task from beginning to end. There is a long way to go on that.
4. Claude is snapping at ChatGPT’s heels
Anthropic began to gain ground on OpenAI late last year, when its Claude Code tool went viral among mostly San Francisco-area software developers, before spreading more widely. Claude Code represented a shift in how large language models – the core technology behind chatbots – are used, ushering in a transition towards autonomous AI agents that carry out tasks without human intervention, enabling even the…
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