The AI theme has been one of the market’s defining forces this year. Investors have funneled money into companies positioned to benefit from the technology’s expanding reach, encouraged by promises that generative AI will streamline operations, reshape corporate workflows, and ultimately unlock new revenue streams. That enthusiasm, however, has come with growing concerns that prices have outpaced fundamentals—echoes, some warn, of the late-1990s dot-com surge.
Skeptics such as Michael Burry have drawn direct comparisons to that earlier era, suggesting that parts of the market show signs of speculative excess. But while bearish commentary has grown louder, most short-selling remains concentrated in smaller firms. Large-cap AI leaders continue to see relatively light short interest, a signal that investors remain reluctant to challenge the sector’s dominant players.
Market unease intensified after Oracle disclosed that its fiscal 2026 capital expenditures will be roughly $15 billion higher than previously projected, a jump tied largely to its expansive AI build-out. Shares have dropped sharply in response, further pressured by reports that some of the data centers under construction for OpenAI will not be completed until 2028—later than earlier estimates.
Broadcom delivered another jolt when it revealed that growth in lower-margin custom AI processors is weighing on profitability, sending its stock down more than 11%. The ripple effects spread quickly across the broader market, dragging down other technology names and pulling the Nasdaq lower by more than 1% on Friday, with the S&P 500 also slipping after reaching a record high the prior day.
Still, some portfolio managers view this pullback as part of a recurring pattern rather than the start of a lasting downturn. Chuck Carlson of Horizon Investment Services argues that brief bouts of selling—similar to reactions earlier in the year—have not fundamentally altered AI’s long-term trajectory. While he expects performance to cool somewhat heading into 2026, he describes the sector’s overall outlook as intact.
Others note that investors have become more discriminating. Capital expenditures, long celebrated as evidence of an AI arms race, no longer guarantee a positive reaction on Wall Street. Meta’s sharp stock drop in November, following guidance for significantly higher AI-driven spending, underscored that shift. Analysts say markets are beginning to differentiate between ambitious investment and investments that can demonstrate clearer, nearer-term returns.
Despite increased scrutiny, many institutions remain wary of positioning against the AI complex. Burry himself has warned that markets may be approaching a dramatic upside blow-off, yet even he has limited his short exposure to select names such as Palantir. Data from Ortex indicates that while short interest has increased among smaller and mid-cap AI firms, the largest beneficiaries of the AI boom continue to face relatively muted bearish pressure.
According to Ortex cofounder Peter Hillerberg, recent movements look less like a coordinated attempt to call the top of an AI bubble and more like targeted skepticism aimed at companies with weaker earnings or specific operational concerns. Investors, he said, are focusing on stock-specific risks rather than betting against the broader AI ecosystem.
Taken together, the week’s developments suggest an AI market in transition: still powerful, still richly valued, but increasingly subject to the same scrutiny and selective pressures that define mature growth sectors. For now, the debate over whether AI is in bubble territory remains unresolved—yet the appetite for AI exposure, at least among the market’s largest players, shows few signs of disappearing.