Artificial Intelligence fears are pressuring technology stocks in US markets

US financial markets are witnessing a state of reassessment in light of mounting concerns related to the impact ofArtificial Intelligenceon the long-term growth of companies. After a wave of widespread optimism about the potential of this technology, questions began to appear about the realistic extent of the expectations on which stock valuations were based, especially in the technology sectors.

In light of this shift, artificial intelligence is no longer viewed only as a catalyst for growth, but rather as a variable that may reshape the structure of markets, whether by enhancing productivity or by affecting traditional business models. From this standpoint, this issue intersects with the Sustainable Development Goals (SDGs), especially with regard to economic growth (Goal 8) and innovation and industry (Goal 9). This article also reviews the impact of these concerns on investor behavior, and their repercussions on company valuations in American markets.

Artificial Intelligence is reshaping growth expectations in markets

A large part of company valuations in American markets is based on long-term growth expectations, as expected profits after more than ten years represent what is known as the “Terminal Value”, that is, the estimated value of the company in the distant future based on its continued growth.

It is estimated that this value represents about 75% of the total valuations of companies included in theS&P 500 Index, which is an index that includes the 500 largest American companies and is considered a main measure of market performance, which reflects a historically high level of reliance on future expectations that may be subject to volatility.

This heavy reliance on future expectations reflects the extent of markets’ sensitivity to any change in outlook on growth, especially in light of the rise of artificial intelligence, which played a major role in enhancing these expectations during the recent period.

Concerns that the impact of artificial intelligence is overestimated

Concerns are beginning to rise that the impact of artificial intelligence on the economic growth of companies may be overestimated, especially with the emergence of new tools capable of automating advanced functions in areas such as marketing and data analysis. This has raised questions about the future of some sectors, especially traditional software companies that may face pressure on their revenues and profit margins.

In this context, Goldman Sachs warned that the current optimism may resemble previous periods of exaggerated expectations, such as the Internet bubble in the late 1990s, which reinforces the need for a more realistic reassessment.

Technology stocks decline reflects growing anxiety

These concerns were reflected in the performance of the markets, as the index of software and services companies in the S&P 500 recorded a decline of about 17% since the beginning of the year, in light of growing concern about the impact of artificial intelligence on future revenues.

This decline indicates that markets have already begun to reprice some assets, taking into account potential risks associated with technological changes. In this context, the repercussions of these concerns are not limited to the revaluation of assets, but also extend to increasing pressures resulting from the volume of huge investments in artificial intelligence.

Huge investments in artificial intelligence put pressure on cash flows

On the other hand, major technology companies, such as Alphabet, Microsoft, Meta, and Amazon, continue to make huge investments in the field of artificial intelligence, with spending expected to reach about $600 billion during the current year alone.

Although these investments reflect a bet on the future of technology, at the same time they represent pressure on short-term cash flows, which raises questions among investors about the timing of achieving returns.

Sensitivity of ratings to any change in growth expectations

The data reveal the sensitivity of company valuations to changes in growth expectations, as estimates indicate that a 1% decrease in long-term growth expectations could lead to a decline in the total value of companies by about 15%.

These effects are more severe in high-growth companies, which rely more on future expectations, making them more vulnerable to fluctuations in light of the uncertainty associated with artificial intelligence.

The future of investment in light of technological uncertainty

It is expected that the state of controversy over the impact of artificial intelligence on markets will continue during the coming period, especially as this technology continues to develop and its full effects on the economy are unclear. This reflects a state of uncertainty, which may prompt investors to adopt more cautious strategies, based on diversifying investments and reducing reliance on uncertain long-term expectations.

This situation also highlights the importance of enhancing transparency on the part of companies, by providing clearer insights into their long-term expectations, which helps investors make more informed decisions. Including clarifying strategies for adopting artificial intelligence and its impact on business models.

In this context, the sustainable dimension is gaining increasing importance, as the evaluation of companies no longer depends only on growth rates, but also on their ability to achieve a balance between innovation and long-term stability, in line with the requirements of sustainable development, especially with regard to economic growth (Goal 8) and the promotion of innovation and industry (Goal 9). This also enhances investors’ orientation towards companies that are able to manage technological risks responsibly and build more flexible and sustainable business models in the face of rapid transformations.

In conclusion, the concerns associated with artificial intelligence reflect a shift in investors’ outlook on markets, where unconditional optimism is no longer enough, but rather requires a careful assessment of risks and opportunities. As this technology continues to develop, markets remain in a state of anticipation, between expectations of significant growth and fears of unexpected effects.

In this context,The Earth Guards Foundation believes that achieving a balance between innovation and economic stability represents a major challenge in the next stage, which contributes to supporting sustainable growth in line with accelerating technological transformations.