Jim Paulsen, a senior equity strategist, flagged two warning signs. AI stocks have begun lagging the broader market, and US core capital goods orders have dropped sharply. His thesis is direct: if corporate investment spending flattens over the next six months, investors who treated AI infrastructure spending as the market's safest growth story will need to recalibrate fast.
The entire AI trade rests on one bet: that tech giants and their customers will keep deploying massive capital for data centers, chips, and infrastructure regardless of higher borrowing costs, a stronger dollar, and rising energy prices. If that spending cadence slows, earnings across semiconductors, cloud services, industrial suppliers, and power-grid stocks get repriced at once. This touches the market's largest and most crowded trade.
Corporate guidance in the coming earnings season will tell the story. Executives will either reaffirm AI budgets as locked in, or start signaling more selectivity on timing, ROI, and project pacing. That language shift will tell you whether Paulsen's warning is early or prescient.
Markets love a growth story that feels inevitable. That's why this warning sticks. When a theme gets expensive enough, it doesn't need to collapse to crack. It just needs to stop accelerating. If Paulsen is right, the danger isn't that AI disappears. The danger is that Wall Street priced an arms race and gets a budgeting cycle instead.
Filed to the Markets desk · Aug 2