Live Markets: AI boom faces reality check as spending outpaces need

Alphabet

Yesterday 17:18

Main US indexes surge; Nasdaq out front, up ~3%
Tech leads S&P sector gainers; Energy down the most
Euro STOXX 600 index up ~0.3%
Dollar down; US crude slides >5%; gold up >3%; bitcoin jumps ~5%
US 10-year Treasury yield falls to ~4.46%
Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com
     
AI BOOM FACES REALITY CHECK AS SPENDING OUTPACES NEED
AI has exploded faster than most expected, but now the price tag is starting to matter. As Philip Palumbo, founder, CEO and chief investment officer at Palumbo Wealth Management, sees it, the big cloud players -- Microsoft, Google, OpenAI and the rest -- have pushed new models out quickly, and with technology this young, grabbing market share matters more than anything. After a phase of experimentation where cost was an afterthought, customers are beginning to tighten the reins. He thinks that shift could create a real clash between demand and what buyers are willing to pay.
In a note out late Friday, Palumbo says he sees plenty of reasons costs are rising. The most advanced “frontier” models are expensive to run, and the hardware that powers them -- chips, power, cooling, memory -- is getting pricier and harder to scale. Demand surged without regard for available compute, so capacity is constrained and therefore costly.
According to Palumbo, the idea that autonomous AI agents will instantly replace everyone’s job is overblown. However, in his view, there may be far more AI infrastructure being built than everyday AI actually needs. Hyperscalers are racing to lock in users because losing share now could be fatal later.
The industry’s instinct is to spend now and sort it out later, which could lead to a big overbuild if many users shift to smaller, “good enough” models. At the same time, physical limits on data center growth act as a brake on runaway expansion.
Palumbo’s bottom line is that AI isn’t suddenly stopping, but progress won’t be smooth or instant. Expect bumps, volatility, and shifting opportunities, which will force constant reassessment. However, he thinks the transition could create chances for long-term investors to buy into durable AI winners at better value than is currently available.
     
(Terence Gabriel)
     *****
     
EARLIER ON LIVE MARKETS:
WAR IS OVER: INDUSTRIAL OUTPUT, EMPIRE STATE, HOMEBUILDER SENTIMENT CLICK HERE
US STOCKS JUMP AS IRAN PACT SENDS OIL SLIDING; DOW EYES RECORD CLOSE CLICK HERE
AI CAPEX BOOM COULD WEIGH ON SHORT-TERM ROE FOR HYPERSCALERS, GOLDMAN WARNS CLICK HERE
BULLISH REVERSAL REIGNITES S&P 500’S RUN AT RECORD HIGHS CLICK HERE
EUROPE'S DATA CENTRE BOOM HITS A POWER WALL CLICK HERE
BARCLAYS RECOMMENDS ADDING TO GOLD EXPOSURE CLICK HERE
COPPER: THE ROUTE TO $15,000/TON CLICK HERE
HORMUZ AGREEMENT DEALS A STRAIT FLUSH TO MARKETS CLICK HERE
EUROPE BEFORE THE BELL: STOCKS SET FOR BIG JUMP ON HORMUZ AGREEMENT CLICK HERE
MARKETS CELEBRATE MOU ON SOH CLICK HERE