AI Stocks Are Hitting a Wall. What’s Next

AI Stocks Are Hitting a Wall. Whats Next. Artificial intelligence is changing the world, but many of the stocks that have benefited are at risk now.

The Global X Artificial Intelligence Technology
AIQ
-3.73%
exchange-traded fund, which tracks software companies and chip makers that gain from AI, more than doubled in price over the past five years. It was up about 0.9% Monday, on track to score a record close, but lower than it was just after trading opened in the U.S. It has been unable to crack meaningfully above its current level.Sellers are starting to come in to lock in profits, limiting the gains. The ETF was at $53.56 early Monday afternoon, compared with the funds record high of $53.72, right around where its rally petered out a week ago.

Even after Microsoft
MSFT
-0.52%
and Amazon.com both reported better-than-expected sales and earningsrevenue was higher than forecast for their cloud businesses, which are benefiting from AIthe fund couldnt break out to $54.

The hesitation is seen across the AI complex.

Stock in Vertiv Holdings
VRT
-5.53%
, a manufacturer that has benefiting from selling power and cooling equipment for data centers, topped out at $199 last week. Early Monday afternoon, the stock was down 0.5% at $191.98, even though its customers said they would spend more money next year on AI.Arista Networks, which sells networking equipment to the data center builders, hasnt made it past the level of $162 it hit last week. It was more or less flat at $157.73 on Monday afternoon.

The Utilities Select Sector SPDR Fund, which has benefited from higher expected power demand from the growth of data centers, hit just over $91 last week. It has since traded down to just over $89.

One problem is that the stocks already reflect much of the long-term earnings to come. Their prices are at nosebleed levels.The AI fund is almost 9% above its 50-day moving average. And when it reached 5% and 6% above that average in April and July of 2024, respectively, it went on to fall by double-digit percentages for the following few weeks.

The takeaway is that the stocks are at risk of a fall.

It could happen if Microsoft, Amazon, Oracle, Alphabet
GOOGL
-2.18%
, or Meta Platforms says it will substantially slow down the growth of their capital investments in data centersa reasonable prospect because at some point, the companies will have all the computing capacity they need for the moment.

That isnt likely to happen right away. Microsoft, for example, said on its earnings call that it will accelerate the growth of its capital expenditures in 2026. But when plans to slow down the spending do surface, expectations of sales and earnings for all the companies that sell chips, equipment, and electricity for data centers will drop.That risk doesnt mean that AI is no longer the future. It is.

But Big Tech may still find a moment to pause the aggressive growth of its investments as it protects its ability to generate an acceptable return on that money. At that point, shares of chip makers, manufacturers tied to data centers, and utilities would endure a setback, while AI investment would eventually pick up later.