The artificial intelligence investment boom that has powered global equity markets over the past two years is facing increasing scrutiny, with some strategists warning that signs of slowing corporate capital spending could undermine one of the market’s strongest growth narratives.

While technology giants continue to commit hundreds of billions of dollars to AI infrastructure, investors are becoming more focused on whether those investments can continue expanding at the pace that has fueled the sector’s extraordinary valuation gains.

Jim Paulsen, former chief investment strategist at the Leuthold Group, believes two recent market developments suggest investors are beginning to prepare for slower AI spending growth.

The first is the underperformance of AI-related stocks, which have struggled even after reporting strong earnings and maintaining aggressive capital expenditure plans. The second is a sharp decline in U.S. core capital goods orders, a closely watched measure of business investment that excludes defense and aircraft purchases and serves as a leading indicator of future corporate spending.

According to Paulsen, the combination suggests financial markets are increasingly questioning whether the AI investment cycle can maintain its current momentum.

“As oil prices, bond yields and the U.S. dollar have surged, investors have already been pricing in a core capital spending slowdown,” Paulsen wrote.

“Should U.S. core capital spending decline in the coming six months or even simply trend sideways, this would force a major readjustment in the mindsets of many investors who have embraced the AI spending story.”

The warning comes as second-quarter earnings from major technology companies reveal an increasingly demanding environment for AI leaders. Rather than rewarding companies simply for increasing AI investments, investors are now seeking evidence that those enormous expenditures are translating into faster revenue growth, stronger profitability and sustainable competitive advantages.

That shift in sentiment has been evident across recent earnings releases.

Several technology companies have reported robust revenue growth and reaffirmed aggressive AI investment plans, yet their shares have come under pressure as investors questioned whether returns on those investments will justify the unprecedented level of spending.

The reaction suggests markets are entering a new phase of the AI cycle, where execution matters more than announcements.

The world’s largest technology companies have committed record sums to AI infrastructure over the past year. Cloud providers including Microsoft, Amazon and Alphabet have significantly increased spending on data centers, advanced semiconductors and networking equipment to meet surging demand for AI services.

Chipmakers such as Nvidia, AMD and memory manufacturers have benefited directly from this spending wave, while equipment suppliers and infrastructure providers have experienced a parallel boom. Collectively, hyperscale technology companies are expected to invest hundreds of billions of dollars this year, making AI infrastructure one of the largest corporate investment cycles in modern technology history.

Macroeconomic Headwinds Emerging

Paulsen believes that broader macroeconomic conditions could begin challenging that investment trajectory. Higher oil prices raise operating costs, elevated Treasury yields increase financing costs, and a stronger U.S. dollar tightens financial conditions globally.

Together, those factors could prompt businesses to become more selective about future capital expenditures, even if they remain committed to AI over the long term.

The recent weakness in core capital goods orders may therefore indicate that corporate investment appetite is beginning to moderate after an extended period of rapid expansion. While one month’s data does not establish a trend, sustained weakness could have broader implications for sectors that have benefited from AI-driven investment.

Importantly, a slowdown in capital spending would not necessarily signal the end of the AI boom. Instead, it could indicate that the market is transitioning from an explosive build-out phase to a more measured period focused on improving utilization, generating returns and optimizing existing infrastructure.

Many analysts continue to hold the belief that AI adoption remains in its early stages and that long-term demand for computing power, cloud services and AI software will continue expanding.

However, after years of accelerating investment, even a moderation in spending growth could pressure richly valued AI-related stocks, whose valuations often assume sustained double-digit growth in infrastructure spending for years to come.

The market’s recent reaction highlights an important shift in investor priorities. During the early stages of the AI boom, announcements of larger capital expenditure budgets were typically viewed as positive signals of future growth.

Now, investors are increasingly asking a different question: when will those investments generate meaningful financial returns?

That evolving narrative suggests future market leadership within the AI sector may depend less on which companies spend the most and more on which companies demonstrate the strongest monetization, productivity gains, and earnings growth from their AI investments.