The artificial intelligence trade has experienced significant volatility, raising alarms among traders due to stretched positioning, substantial leverage in exchange-traded funds (ETFs), and increased price swings in semiconductor stocks. This "treacherous landscape" is prompting worries about a potential rout, even as the long-term AI narrative remains positive.
Investors are reportedly "maxing out" the AI trade, with massive leverage in tech-focused ETFs, which account for about $200 billion in assets, amplifying market movements. For every 1% shift in the underlying index, approximately $9 billion in rebalancing occurs. This, combined with concerns over South Korean memory-chip giant SK Hynix, has created a feedback loop of selling pressure, evidenced by a rough week for tech stocks including Nvidia, Micron, and a temporary 10% plunge in South Korea's Kospi.
Big Tech companies, including Alphabet, Amazon, Meta, and Microsoft, are projected to spend significant amounts on AI infrastructure and data centers, with estimates reaching $720 billion this year, up 77% from $410 billion last year. Goldman Sachs even forecasts AI spending by these four companies to hit $5.3 trillion by 2030. While these expenditures highlight the AI arms race, investors are increasingly questioning whether this spending will translate into durable cash flow rather than just higher depreciation and
