Are the expectations for AI spending too high?

Investing.com - Wolfe Research warned in a report on Tuesday that although market volatility remains high, investors may be assuming that AI investments will grow at an unsustainable aggressive pace.

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The firm told clients that recent trading indicates “the risk of AI disruption has prompted investors to ‘sell first, ask questions later,’ causing even the mildest news headlines to trigger declines of over 5% in related industries.”

Analyst Chris Senyek pointed out that the S&P 500, Nasdaq 100, and Russell 2000 fell between 1% and 1.6% on Monday.

Senyek said the key question for 2026 is whether mega cloud service providers can sustain the higher-than-expected spending momentum from last year.

He wrote, “During 2025, mega cloud service providers’ capital expenditures exceeded market consensus expectations,” but added, “The critical issue this year is whether they can continue to maintain this rapid pace of spending.”

Wolfe Research emphasized that increasing constraints could begin to disrupt the construction of large-scale AI infrastructure in the second half of next year.

The analyst pointed out risks from “power generation, material costs, or regulatory hurdles,” suggesting these bottlenecks could start affecting project timelines.

Shifts in spending behavior will have significant market impacts.

Wolfe Research believes, “Delays or reductions in capital spending will serve as a very positive catalyst for the markets most affected by AI,” while potentially triggering “sharp corrections in highly AI-related stocks (such as semiconductors and industrials).”