Investors worry reduced AI spending could harm tech stocks amid rising oil prices and geopolitical tensions, says Kyle Rodda
Investors are increasingly concerned about the impact of AI infrastructure spending on tech stocks, as market volatility continues.
The fear is that if major companies reduce their capital expenditure, it could lead to reduced profitability across the AI supply chain.
Kyle Rodda from Capital.com explains that the market is in a precarious position, balancing on an unstable equilibrium. “Investors are concerned if the hyperscaler stops spending, that’s a dollar of profits to another company,” Rodda said. He argues that while the AI boom is not over, the trajectory for growth may be flatter.
Investors are concerned if the hyperscaler stops spending, that’s a dollar of profits to another company.
Kyle Rodda, Capital.com
AI spending and market volatility
Rodda highlights that the market’s reaction to AI spending is partly due to the fear that the growth cycle might have peaked.
If the total addressable market is smaller than initially thought, it could lead to revisions and increased volatility.
This is compounded by external factors such as rising oil prices and geopolitical tensions.
Oil prices have hit $114 per barrel, and geopolitical uncertainties, including potential strikes in the Middle East, add to the market’s instability.
Rodda notes that these factors have caused investors to be cautious, contributing to the recent sell-off in tech stocks.
Despite these challenges, Rodda does not foresee a major correction in tech stocks.
He believes that while valuations may need to be adjusted, they are not excessively high. “It doesn’t mean that the growth trajectory or the trend changes necessarily, but it’s flatter,” he explained.
Looking ahead, Rodda suggests that investors should watch for changes in capital expenditure guidance from major tech companies.
The market’s reaction to these changes will be crucial in determining the future direction of tech stocks.
