Is the AI Boom Priced In? This single question is dominating financial channels this week. Volatility has spiked following a recent note from Goldman Sachs (NYSE:GS) suggesting that the majority of market gains from the AI wave may already be accounted for.
Following a 5% slip in the S&P 500 from its all-time highs, fear of a bubble burst is mounting. However, a closer look at the underlying tech infrastructure suggests this may be a healthy consolidation rather than a systemic collapse.
Here is a deep dive into the market data, infrastructure spending, and why the “AI Bubble” narrative might be premature.
1. Correction vs. Crash: Understanding the Pullback
While short-term traders are panicking over recent dips, historical data suggests this volatility is normal. No secular trend moves in a straight line.
The Market View: Investors are rotating out of high-growth tech stocks due to fears of overvaluation.
The Tech Reality: Unlike the Dot-Com bubble—where companies had no revenue—today’s AI giants (NVIDIA, Microsoft, Alphabet) are generating record-breaking free cash flow. A market correction clears out speculative “hype” companies, leaving the infrastructure builders stronger.
2. CapEx Tells the Real Story
While stock prices fluctuate, Capital Expenditure (CapEx) tells a clearer story about the future of AI. Goldman’s warning focuses on valuation multiples, but it potentially overlooks the massive, sustained demand for compute. Major tech firms including Meta, Microsoft, and Google have signaled they are increasing their spend on NVIDIA H100/Blackwell chips, not decreasing it.
There is a natural lag between Infrastructure Build-Out (buying chips) and Software Profitability (selling AI agents). The market is currently in this “lag” phase, often mistaken for a bubble burst.
3. Case Study: Palantir (PLTR)
The disconnect between earnings and stock price is most visible with Palantir Technologies. The data surveillance firm recently saw its stock drop over 20% despite a strong earnings report.
The Analysis: The sell-off appears driven by macro-fear rather than company fundamentals. With the rapid adoption of Palantir’s “AI Bootcamps” and secured government contracts, the stock is arguably being punished for not meeting impossible expectations, rather than for poor performance.
Conclusion: The “Tech Wreck” is likely temporary
While headlines suggest the AI Boom Priced In theory is confirmed, the underlying data shows a multi-year secular trend comparable to the internet adoption curve. While volatility is painful in the short term, it allows long-term investors to distinguish between companies with real utility (Infrastructure and SaaS) and those relying purely on marketing.
Should this tech correction worsen, the case for selective stock-picking strengthens. The winners of the next phase will be defined by utility and adoption, not just hype.
Frequently Asked Questions (FAQ)
Is the AI Boom officially over?
No. While stock prices are correcting (dropping 5-10%), the actual infrastructure spending by major tech companies is at an all-time high. This indicates a “market correction,” not the end of the technology’s growth trend.
Why are AI stocks dropping if earnings are good?
This phenomenon is known as being “Priced In.” The market expectations were set exceptionally high. When companies reported “Great” results instead of “Perfect” results, short-term traders sold their positions.
What is the difference between an AI “Correction” and a “Crash”?
A crash (like the Dot-Com bubble) typically occurs when companies have high valuations but no revenue. A correction happens when profitable companies become slightly too expensive, and the market adjusts the price down. Today’s major AI players remain highly profitable.
What does “Priced In” mean?
It suggests that investors have already bought stocks based on future good news. Therefore, when the good news actually happens, the stock price doesn’t go up because the value was already accounted for previously.
