2026 was meant to be the year Wall Street’s trillion-dollar artificial intelligence (AI) bet started paying off. Instead, it’s turning into a test of nerves.
In the first half of the year, many AI stocks hit record highs as US hyperscalers like Google's Alphabet, Meta and Microsoft recorded bumper earnings.
Two of the largest AI players — Anthropic and OpenAI — announced plans for public listings, following SpaceX's much-hyped IPO in June, which briefly made Elon Musk the world's first trillionaire.
AI models, meanwhile, got noticeably better at difficult tasks in the race to beat human intelligence.
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AI doubts trigger market turbulence
The second half of 2026, however, has brought a lot more uncertainty. While the stock of Nvidia, a chipmaker, pushed even higher last month, many hyperscalers and chip or memory firms have seen their stock prices gyrate wildly.
Then last week, after the Democrats secured control of the United States Congress in the midterm elections, technology stocks sold off dramatically, with the Magnificent Seven — including Meta, Apple, Amazon and Tesla — losing more than $1 trillion in value in a single trading day.
In a further twist, the AI sector took another hit this week as Nvidia shares plunged nearly 10% over two days. The sell-off followed news that Nvidia's board — alongside the FBI — is investigating CEO Jensen Huang’s ties to a woman suspected by US intelligence of being a Chinese spy.
On Thursday, Huang resigned from the chipmaker when a second alleged marital affair was revealed, sending Nvidia's shares lower still.
Nvidia CEO Jensen Huang is under scrutiny over an affair with an alleged Chinese spyImage: Soeren Stache/dpa/picture allianceAmid huge spending, big returns remain elusive
Wall Street is growing increasingly cautious about the sheer size of the AI outlay, amid warnings that future earnings may not justify the huge spending. Growing pressure on US lawmakers to curb the expansion of AI data centers has added to those doubts.
In September, investment bank Goldman Sachs estimated that hyperscalers need around $300 billion in annual AI revenue to break even on their spending, leaving a gap of roughly $230 billion.
"We're not in Kansas anymore," Dennis Dick, chief market strategist at the Canada-based Stock Trader Network, told DW, meaning that times have changed. Now, he said, investors are telling companies: "show me the money."
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AI stocks needed a 'healthy correction'
Other analysts think it's too soon to expect the AI bubble to burst, including Kit Rees, investment strategist at London-based wealth manager Quilter, who thinks last week's rout was a "healthy correction."
"We’re still in the very early innings of the AI build-out," Rees told DW. "There’s still a lot of excitement around this technology and investors will want to have a slice of the pie."
In addition to the roughly $800 billion invested in capital expenditures this year, AI hyperscalers plan to spend a further $1.2 trillion in 2027 and $1.4 trillion in 2028, according to Goldman Sachs estimates.
Questions over timing of Anthropic IPO
While OpenAI has delayed its public listing until next year, Claude-maker Anthropic still plans its IPO later this month. On Tuesday, the company said it would offer 825 million shares at between $70 and $78 per share.
Dick said Anthropic’s decision to go ahead amid the market sell-off left him scratching his head. “Is this the best timing?” he asked.
While Anthropic had originally targeted a valuation of over $2 trillion, it now thinks the firm could be worth around $1.2 trillion to $1.3 trillion.
Dick said the valuation depends on whether Anthropic can deliver on a forecast by Goldman Sachs of over $600 billion in revenue by 2030.
"If you get to a company with $600 billion in revenue, [a] $1.3 trillion [valuation] doesn’t sound that bad," he told DW. "But when you’re talking about a company with currently $52 billion in revenue, it sounds like it’s overvalued."
Other analysts, like Vivek Seth, chief executive officer of Shaires Holdings, are more bullish about the Claude-maker's prospects.
“Anthropic is a once-in-a-generation company,” Seth told Bloomberg this week, noting how it has grown rapidly and has strong institutional backing. “Its IPO will establish a market-clearing valuation as conditions stabilize.”
Signs to watch, not reasons to flee
With many investors already running for the hills, Rees isn’t convinced the AI bubble will burst in the way skeptics expect. She thinks they should watch for stronger signs that the AI trade is maturing.
This could be "a slowdown in AI-related revenues for companies, or signs of less demand or less appetite for financing companies’ AI plans, be it through debt or through equity offerings," Rees told DW.
There are early signs that investors have less appetite for AI-related debt. Borrowing costs for AI infrastructure firms like CoreWeave and Oracle have soared recently. Even the cost of insuring Nvidia’s debt against default has risen 76% in a month, CNBC reported last week.
"They [Oracle] have been spending, some people say, like drunken sailors," Dick told DW. "They’ve compromised their balance sheet to a point where the stock’s fallen 65% from the highs."
That has not stopped Oracle, along with Meta, Microsoft and Alphabet, from continuing to issue new AI bonds. Since the end of last month, the four AI giants have announced deals worth $67 billion.
Rees said another sign could be any new regulations that make it harder to build out US data centers.
This summer, New York and Texas temporarily paused new data center approvals. Texas Governor-elect Gina Hinojosa, a Democrat who takes office in January, wants new laws to stop data centers’ heavy power and water use from pushing up household bills.
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Not 'different this time'
In his upcoming book "AI Mania: Blather, Bluster, and the Bubble of All Bubbles," economist Gary Smith compares the AI boom with earlier frenzies around railroads, automobiles, television and the internet. He warns of a "frightful crash" when the AI bubble eventually pops.
When the dot-com bubble burst in 2000, the tech-heavy Nasdaq stock market index lost nearly 80% of its value. Yet, previous bubbles have often lasted far longer than expected, making the timing of any crash hard to predict.
Joachim Klement, head of market strategy at UK-based investment bank Panmure Liberum, believes a reckoning could happen as early as next year.
"My core conviction is that the AI bubble will either burst in 2027 or in 2028, so sometime in the next two years,” Klement told Bloomberg last month.