Analyst says AI stock trade is stuck between spending and payoff
Wedbush’s Dan Ives says investors are punishing Meta and Microsoft while they wait for AI spending to turn into revenue growth.
By Sofia Marchetti · World Affairs Correspondent
3 min read
Big technology stocks tied to artificial intelligence are under pressure as investors wait for evidence that heavy AI spending will produce revenue growth, according to Wedbush analyst Dan Ives. His warning matters because the next quarterly earnings season will test whether Wall Street keeps backing the AI buildout or grows more skeptical of its costs.
Ives said in a recent email that Microsoft and Meta are being treated by investors as if they are “bear market names that cannot be owned,” according to Fortune. He also said the two companies are being priced as though they were “wearing winter jackets to the beach in the summer.”
The concern, Ives said, is timing. He described the market as being in a six-to-12-month “air pocket” while major cloud and technology companies spend as much as $700 billion on AI data center construction, according to Fortune.
AI spending is running ahead of visible returns
Ives said Microsoft, Meta and, to a lesser degree, Amazon and Alphabet are in a waiting period before investors can see whether AI use cases turn into a growth and monetization surge. He argued that the current cost burden should begin easing over the coming year, according to Fortune.
In Ives’s view, AI consumer hardware, physical AI deployments and enterprise uses will expand at scale over the next few years. He compared today’s investment phase to building the Las Vegas Strip in the 1950s, according to Fortune.
Ives, who is known as a bullish technology analyst, said skeptics will keep warning about the sector while investors wait for the payoff. Fortune reported that the latest bout of unease follows a market reaction to Apple’s price increase announcement, which added to worries that the AI trade may not deliver as quickly as expected.
Broader market risks are also rising
The AI debate is landing as major indexes enter the final day of the second quarter with gains in several regions, according to Fortune’s market rundown. Fortune reported that S&P 500 futures were flat after the index rose 1.18% the prior day, leaving it up 8.69% for the year.
In Europe, the Stoxx 600 was up 0.69% in early trading and 7.44% year to date, while the U.K.’s FTSE 100 was up 0.65% before lunch and 6.04% for the year, according to Fortune. In Asia, Fortune reported gains for South Korea’s KOSPI, Japan’s Nikkei 225 and China’s CSI 300, while India’s Nifty 50 was flat.
David Laut, chief investment officer at Kerux Financial in Granite Bay, California, told Fortune that June’s volatility could be the start of a larger pullback. Laut said broader markets could face a 10% to 20% correction because valuations remain elevated, geopolitical uncertainty persists and summer trading volumes are low.
Laut also said the market has gone more than a year without a double-digit decline, according to Fortune. That backdrop adds pressure to the coming earnings reports, where investors will look for signs that AI spending is beginning to translate into business results.
This story draws on original reporting from Fortune.