Since the release of ChatGPT in late 2022 , artificial intelligence has become the primary driver of US market growth. However, a growing disconnect between masisve capital spending and actual profit margins is creating intense volatility among investors.
The 90% capital spending dominance since 2022
The artificial intelligence sector has fundamentally reshaped the composition of major US indices. According to the report, the sector has accounted for 90% of capital spending growth, 80% of earnings growth, and 75% of S&P 500 returns since the launch of ChatGPT in November 2022. This massive concentration of growth has pushed equity valuations higher while simultaneously driving bond yields to record levels.
Financial institutions are now attempting to isolate the specific winners within this massive trend. For instance, JPMorgan Private Bank has narrowed the field of AI-related stocks down to just 41 specific firms.. This concentration suggests that while the broader market appears buoyant, the actual drivers of performance are becoming increasingly specialized and high-stakes.
Microsoft's Azure growth vs. declining profit margins
Microsoft is currently navigating a complex transition within its cloud and AI service divisions. while the company has reported rapid growth in its Azure cloud subscriptions, it has also faced a modest decline in profit margins over the last twelve months, as reported by the source. This trend highlights a growing tension between the scale of AI adoption and the actual profitability of those services.
The struggle for Microsoft involves managing a shrinking portfolio of strategic use cases alongside the high costs of maintaining its AI infrastructure. This disconnect between top-line growth in cloud subscriptions and the actual bottom-line margin suggests that even the industry's largest hyperscalers are feeling the weight of high compute costs.
The $106 vs $39 battle over CoreWeave
The debate over the financial health of the AI sector is most visible in the wildly conflicting outlooks for CoreWeave. HSBC has adopted a bearish stance on the firm, citing high-cost debt and a loss-making record; the report notes that HSBC has set a price target of $39 and suggested investors reduce their exposure. This skepticism is echoed in the bond market, where CoreWeave's 2033 notes have faced significant volatility.
Conversely, Goldman Sachs' trading desk has provided a much more optimistic assessment of the company. Goldman Sachs issued a "Buy" rating with a $106.0 price target, based on the expectation that CoreWeave will see significant growth in its AI infrastructure capacity. This massive divergence in valuation between two major financial institutions illustrates the speculative nature of the current AI landscape.
Will token volume translate into sustainable revenue?
A critical uncertainty remains regarding the economic utility of the data units driving these neural engines. While the volume of tokens used in AI technology remains in high growth, the actual value of these tokens has dropped dramatically over the past year. This creates a fundamental question for investors: if token usage does not eventually convert into large-scale knowledge bases or tangible startup revenue, the high cost of computing may become unsustainable.
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