The global AI investment story that surged after the debut of ChatGPT in late 2022 is beginning to fracture. What once looked like a broad-based boom—lifting chipmakers, software companies, cloud providers, and even businesses likely to be disrupted—has now evolved into a more selective, sharply divided market.
That initial wave pushed equity and debt markets to lofty levels, prompting bubble warnings from regulators and investors alike. Major tech companies such as Microsoft, Amazon, Alphabet and Meta have pledged hundreds of billions of dollars in AI spending, reinforcing the perception that the technology will underpin the next era of growth.
But this week’s market turbulence suggests the AI trade is hitting a turning point. Investors are no longer simply chasing the theme; they are questioning whether the promised payoff will justify the rapidly escalating costs.
Below are four charts that illustrate how the AI trade is shifting—away from broad optimism and toward a more discerning approach.
1. “PICKS AND SHOVELS” OUTPERFORM THE REST
Hardware suppliers are now outperforming software and data firms as investors focus on the physical infrastructure behind AI.
The recent sell-off in software stocks has widened the gap between AI “picks and shovels” — the hardware makers building the data centers that power AI — and companies further down the supply chain.
In the U.S., software heavyweights ServiceNow and Salesforce fell 12% and 9% respectively in a single week. In Europe, data and analytics firms RELX and the London Stock Exchange Group dropped 16.4% and 6.3%.
These losses are striking because software, data, and analytics firms were initially seen as clear AI beneficiaries. Investors expected generative AI to enhance products and boost profitability.
Semiconductor and data-center related stocks have also declined, but not nearly as sharply. That has widened the gap between AI enablers and potential AI casualties.
“This divergence is not a vote against AI,” said Charu Chanana, chief investment strategist at Saxo. “It is a signal that investors are differentiating between who enables AI and who may be disrupted by it.”
Barclays strategists echoed this view, calling the dispersion in Europe’s AI trade “extreme,” as investors split between hardware winners and software-dependent firms facing uncertain AI payoffs.
2. THE “MAGNIFICENT SEVEN” NO LONGER MOVE AS ONE
The once-unified group of mega-cap tech stocks is splitting as investors demand proof of returns from massive AI spending.
The so-called Magnificent Seven—large-cap U.S. tech companies that once traded as a tight group—are now diverging, driven by differing AI strategies and investor skepticism over capex.
Goldman Sachs Asset Management noted earlier this year that varying AI and cloud plans were already fracturing the group’s narrative.
The divergence became clear in recent earnings:
- Microsoft and Meta both reported higher capex, yet Microsoft shares fell 10.4% while Meta surged 10%.
- Alphabet’s major capex increase caused shares to drop as much as 8% before closing flat.
- Amazon fell 8.5% after announcing a 50% increase in capital spending.
“There's going to be huge divergence,” said Mark Hawtin, head of global equities at Liontrust. “The market is no longer tolerating spending for spending’s sake.”
The Roundhill Magnificent Seven ETF is down 5% over the last week, compared with a 2% fall in the S&P 500—showing how investors are increasingly wary of capex-heavy strategies without clear returns.
3. SOUTH KOREA LEADS THE AI RALLY ON MEMORY BOOM
Investors are betting heavily on memory chip demand, pushing South Korea to the top of global AI performance charts.
While AI winners among end-users remain unclear, the market is increasingly focusing on chipmakers—especially those tied to memory demand.
South Korea, home to the world’s leading memory producers, has become the standout market. The KOSPI index is up 20.8% year to date, compared with a 0.5% drop in the S&P 500 and a 4% gain in Europe’s STOXX 600.
“From Q3 onwards, the AI capex trade has shifted heavily to memory, which is a Korea trade,” said Gerry Fowler, head of European equity strategy at UBS.
South Korean chipmakers Samsung Electronics and SK Hynix are up 32% and 29% respectively this year.
Morningstar data shows U.S.-listed Korean equity funds saw a 20% rise in inflows in January, making them some of the most popular investments last month.
4. AI INVESTMENT IS NO LONGER A SINGLE “THEME”
The market is now split into distinct winners and losers, rather than a unified AI trade.
What began as a broad AI-driven rally has evolved into a more nuanced landscape. Investors are now drawing clear lines between:
- AI enablers (chipmakers, data centers, hardware)
- AI beneficiaries (software, cloud services)
- AI disruptors (industries facing existential change)
The market’s growing selectivity suggests that AI is transitioning from a speculative “idea” into a capital-intensive reality. And as costs rise, investors are increasingly focused on where returns will truly materialize.