The optimism surrounding AI is facing scrutiny as investors and industry leaders reassess the long term profitability of AI-related infrastructure.
Recent stock market trends suggest a shift away from the AI sector, with semiconductor and cloud computing stocks among the worst performers in 2025 so far, according to AJ Bell.
AI hype faces a reality check
The market is undergoing a significant rotation.
According to AJ Bell investment analyst Dan Coatsworth, “value stocks are enjoying their moment in the sun, whereas growth stocks have fallen out of favour”.
This sentiment has been largely driven by the emergence of DeepSeek, an AI startup offering advanced, low-cost models.
Its competitive pricing forced companies to rethink AI spending, shifting the conversation from “do AI at any price” to “find a cheaper way to do it”, says Coatsworth.
Notably, it caused Nvidia’s largest single day market cap loss in history.
As a result, businesses are now reassessing their AI investment, potentially slowing down data centre expansions and infrastructure spending.
This cautious approach has already been reflected in the market.
Microsoft reportedly canceled some of its US data centre leases last week, as it scales back international infrastructure spending.
While the tech giant has denied this is happening, Vertic Holdings, a major data centre infrastructure company, fell 6.3 per cent following the news.
Nvidia has seen its stock decline 10.6 per cent this week, despite recently posting strong results.
The drop reflects investor concerns over sustainability, especially as an increasing number of the Magnificent seven, like Amazon, Google, Meta and Microsoft, are now developing their own AI chips.
In the broader tech sector, Google’s parent company Alphabet has experienced a 10.6 per cent drop in its share price year to date.
Microsoft has also fallen by nearly 7 per cent (6.9 per cent), and Amazon by 4.9 per cent.
A shift in sentiment?
Coatsworth added that the sector appears to be entering the “reality check” phase of its hype cycle.
Over the past two years, AI stocks soared as firms rushed to showcase its adoption and implementation.
Now, that enthusiasm seems to be cooling as businesses and investors demand clearer paths to profitability.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “Without clear evidence that big AI spend is justified, concerns are swirling that it might curtail AI adoption.”
It seems that firms delaying AI projects are being rewarded.
Apple’s share price briefly jumped in the US market this week amid reports that it had postponed the rollout of a more advanced AI-powered Siri.
Peviously having been criticised for being late to the AI party, Apple may now benefit from a more cautious approach that avoids unnecessary speculative spending.
Meanwhile, the rest of the sector is feeling the effects of AI investment fatigue.
Power generation giant Vistra, which has seen major benefits from AI due to increases in data center power demand, saw a 12 per cent stock decline after Nvidia’s results, due to delays in securing deals for nuclear data centers.