The sharp sell-off in AI-focused hyperscalers towards the end of last week has prompted a familiar question: is this the start of something more serious, or merely a healthy pause for breath after a dizzying rally? Investors have not been short of reasons to reassess their positioning. Rising bond yields, cooling corporate capital expenditure, and concerns that the returns from generative AI may take longer to materialise, have all weighed on sentiment.
Yet it might be premature to declare the AI boom over. Hyperscalers such as Amazon and Microsoft still sit at the heart of the digital economy’s most powerful trend. Demand for cloud services, data centre buildouts, and high-performance computing is not evaporating. If anything, it is diversifying. The narrative has however shifted from the speculative “AI will change everything” to more sober questions surrounding timelines, efficiency gains and pricing.
This transition is not necessarily bearish (i.e., characterised by falling share prices). Markets often overreact to both hype and hesitation. The extreme valuations seen have set the stage for a pullback, perhaps as earnings expectations start to run ahead of what even the world’s largest tech firms can deliver in the short term. A correction may prove constructive if it cools the more exuberant expectations, and gives investors clearer benchmarks for evaluating growth.
The wild card is whether corporate customers continue to increase spending on AI infrastructure. If budgets tighten meaningfully, the sell-off could extend, especially if guidance from the hyperscalers turns more cautious. Conversely, any evidence that generative AI tools are translating into significant productivity improvements—or that perhaps governments will adopt more AI-driven systems—might reignite investor appetite.
For now, the most reasonable conclusion is that we are witnessing a recalibration rather than a collapse and that the long-term thesis remains intact. The short term may stay choppy, but the structural demand story behind AI is likely to be far from finished.
The value of securities and the income from them can fall as well as rise. Past performance should not be seen as an indicator of future returns. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.
