Key Points
It’s hard to wrap your head around the amount of money that’s being spent on AI-related computing resources.
To fund these investments, even companies in top financial shape have entered into unique and complex deals.
No one has any clue what the eventual payout of the unprecedented AI investment boom will be.
Over the long term, the S&P 500 index has generated an average annualized return of 10%. In recent times, the closely watched benchmark is crushing it, though. It produced total returns of 26% in 2023, 25% in 2024, and 18% in 2025. Investors have no complaints.
The latest surge can be attributed to the ongoing artificial intelligence (AI) craze. This is shown empirically by the fact that the “Magnificent Seven” stocks represent about a third of the entire S&P 500’s market cap, according to the latest research from The Motley Fool.
Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue »
Investors are wise to consider any potential risks that the current environment might present. Is the stock market in an AI bubble today? Here are three possible warning signs.
Drawing of robot face blowing AI-filled bubble.
Image source: Getty Images.
1. The amount of spending on AI infrastructure is unprecedented
Some of the companies at the forefront of AI, those that are building and operating large data centers, are called hyperscalers. This group includes Amazon, Microsoft, and Alphabet, which are the leading cloud computing providers. Combined, they spent hundreds of billions of dollars on AI-related capital expenditures last year, boosting their outlays compared to prior years.
What’s at least somewhat encouraging is that these three hyperscalers are some of the most financially sound businesses in the world. They have the cash flows and strong balance sheets to play this game.
This isn’t necessarily the case with OpenAI, which set off this AI race when it introduced ChatGPT to the world in November…
..
