Analysis-Investors on guard for risks that could derail the AI gravy train

Core Insights - Optimism surrounding artificial intelligence (AI) has significantly contributed to record highs in the U.S. stock market, with investors now vigilant for potential weaknesses in the AI sector [1][2] - The S&P 500's market capitalization is approximately $57 trillion, with nearly 50% of this value having "high" or "medium" exposure to AI, reflecting the technology's growing influence [2] - The tech-heavy Nasdaq Composite has seen a year-to-date increase of 17%, while the S&P 500 has risen by about 13% [2] Investment Sentiment - The market's resilience is largely attributed to AI-related trades, as noted by investment strategists [3] - Despite the overall bullish sentiment, there are concerns regarding the high growth expectations already priced into the market, which could pose risks if not met [5] Market Volatility - Technology and AI-linked stocks have experienced volatility, particularly due to the introduction of a low-cost Chinese AI model, Deepseek, which raised concerns about capital expenditures [4] - The AI trade has shown resilience, recovering from setbacks earlier in the year [4] Capital Expenditure Focus - Investors are closely monitoring capital expenditures (capex) related to AI infrastructure, as significant spending could impact profitability [6] - Capex from major cloud computing and AI platform companies, referred to as "hyperscalers," is projected to double to $500 billion annually from 2024 to 2027 [7] - It is crucial to assess whether these companies are spending at a rate that exceeds their growth, potentially affecting free cash flow margins [8]