Market professionals are growing wary of a potential backlash against artificial intelligence, a concern that could significantly impact the ongoing rally in AI stocks. Factors contributing to this unease include public outrage over rising electricity bills across the US, increasing pushback from state and local governments against new data center projects, and anxieties among workers who fear job displacement due to powerful new AI tools. These sentiments are creating a new layer of risk for investors already questioning the longevity of the AI-driven market surge.
This sentiment from Wall Street, noted by Matthew Griffin and Ryan Vlastelica, suggests that the market is beginning to price in the broader societal and regulatory challenges that AI technology might face. The article highlights that these public and policy risks are mounting in the US, adding pressure to AI stocks.
Separately, the broader market experienced a downturn on July 17, with major US stock indexes closing lower, driven by a sell-off in the AI and semiconductor sectors. The Philadelphia Semiconductor Index fell 1.63%, entering technical bear market territory, indicating continued profit-taking in AI hardware trades. Companies like Nvidia, AMD, Intel, SanDisk, and TSMC all saw declines ranging from 0.47% to 3.93% on that day, reflecting investor concerns over overvalued AI trades, rising oil prices pushing inflation, and a hawkish turn in Federal Reserve policy. Geopolitical tensions also contributed to increased oil prices, with Brent crude rising above $90 a barrel, further complicating the inflation outlook.
Despite resilient consumer confidence and some positive economic data, investor caution is heightened. Upcoming tech earnings reports from Alphabet and Tesla are viewed as crucial tests for AI monetization and the sustainability of corporate capital expenditures. The market is also grappling with record levels of leverage, with customer debit balances in margin accounts reaching an all-time high of approximately $1.416 trillion in May 2026, marking a 53.7% year-over-year increase. This high leverage, particularly concentrated in AI-related names, amplifies both potential gains and downside risks, exemplified by a 3x leveraged semiconductor ETF dropping 31% in a single day on June 5, 2026.
Many professionals are concerned about the leverage structure, including margin loans, leveraged ETFs, options, and equity repo structures, that has fueled the AI rally. This structure, which has seen short interest in leading AI names decline as prices rose due to short covering, has created a structural loop where positive earnings surprises lead to forced buying and further price appreciation. However, the record levels of margin debt and concentrated market capital in AI-related names indicate a thin cushion against potential forced selling, increasing the overall risk profile of the market.
