Global markets have experienced an extraordinary run since late 2022, largely driven by the artificial intelligence boom, with the MSCI World Index gaining nearly 90 per cent. This pervasive growth has led to AI and related sectors comprising over half of the S&P 500 by some estimates, influencing everything from equity valuations to debt markets and real estate. As Australian superannuation funds prepare to report their 2026 financial year returns, members are prompted to consider how deeply the “AI trade” has permeated investment landscapes.
However, recent activity on Wall Street indicates the AI sharemarket boom may be nearing a tipping point. Computer memory maker Micron Technology, a global leader in designing and manufacturing computer memory and data storage products, reported stunning quarterly profits, with revenue surging and profit margins reaching 80 per cent. Despite its shares climbing an additional 15.8 per cent, bringing its 12-month gain to over 700 per cent, investors are scrutinising the massive investments by AI “hyperscalers” like Microsoft, Amazon, Alphabet, Meta, and Oracle. These tech giants plan to inject trillions into AI infrastructure, yet their own share prices are experiencing declines, with Microsoft, Meta, and Oracle seeing drops of 32 per cent, 31 per cent, and nearly 40 per cent respectively from recent peaks.
This divergence suggests investors are questioning the return on investment for the colossal spending by hyperscalers, whose costs translate directly into chipmakers’ revenues. Further complicating the outlook, Apple recently increased prices for MacBooks and iPads, citing soaring memory chip demand driven by the AI build-out. This contributes to broader inflation concerns, particularly as the US personal consumption expenditure, the Federal Reserve’s preferred inflation gauge, currently sits at 4.1 per cent, more than double its target. Such inflationary pressures could lead to further interest rate hikes, challenging the current market environment. While AI dominance is an existential priority for some tech leaders, the market’s response hints at a growing desire for more restrained spending, suggesting the industry faces a critical “when” rather than “if” concerning a potential re-evaluation of the AI boom’s sustainability.
