Apollo Global Management (NYSE:APO) chief economist Torsten Sløk warned Tuesday that the stock market could face a painful repricing if returns from massive artificial intelligence investment fail to materialize as quickly as investors expect.
Sløk said in a post that markets may be getting too optimistic about how fast AI spending will translate into earnings growth, even as U.S. equities continue rallying on AI enthusiasm, with the NASDAQ 100 on track for one of its strongest quarters in years.
A market repricing happens when investors sharply adjust stock valuations after expectations change, often leading to significant declines in share prices.
Much of the current AI bull thesis assumes massive capital spending will quickly translate into productivity gains, margin expansion and stronger corporate earnings.
"This creates a dangerous divergence between aggressive, front-loaded valuations today and a much slower cash flow reality, since equity markets priced for instant earnings growth will face a painful repricing if the productivity hockey-stick takes five years rather than five months," Sløk wrote.
AI Spending Boom Meets ROI Questions
Sløk’s warning comes as AI infrastructure spending continues to surge across the technology sector.
Major hyperscalers including Amazon.com Inc. (NASDAQ:AMZN), Microsoft Corp. (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOGL), Meta Platforms Inc. (NASDAQ:META) and Oracle Corp. (NYSE:ORCL) are collectively expected to spend about $805 billion in capital expenditures in 2026, according to estimates from Morgan Stanley.
Meanwhile, Goldman Sachs estimates AI-related spending is running at an annualized $650 billion and could exceed $800 billion by the end of 2026, with investment flowing into chips, servers, memory, power infrastructure and data centers.
Some bulls argue the spending is justified because demand is already here. CNBC’s Jim Cramer recently defended the spending spree, arguing cloud providers are not building AI infrastructure speculatively but racing to meet existing demand.
Not Every Industry Moves at Tech Speed
Sløk, however, argued the biggest risk is not AI demand itself but the pace of monetization outside tech.
He said there is little evidence that AI is meaningfully improving margins in slower-moving sectors such as healthcare, banking, insurance, energy, manufacturing, transportation, real estate, education and legal services.
"The list of slow-moving sectors is long," Sløk said, warning that AI adoption in these industries may take years to generate meaningful financial returns.
That caution comes as policymakers also watch AI’s macroeconomic effects. Cleveland Federal Reserve President Beth Hammack said Tuesday that surging AI infrastructure demand could keep inflation elevated, noting hyperscalers appear willing to pay "almost any price" for critical inputs.
Sløk also flagged rising AI operating costs as an emerging concern, saying companies are increasingly focused on token optimization, or reducing AI compute usage to lower costs.
"Companies will slow their AI spending if they don’t see ROI quickly, and the current focus on token optimization is an early warning that AI implementation could be a bumpier, slower road than expected," Sløk wrote.
Disclaimer: This content was produced with the help of AI tools and was reviewed and published by Benzinga editors.
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