- Markets have become so invested in the artificial intelligence trade that there is very little room for error if the massive spending does not pay off, Citadel Securities’ head of EMEA fixed-income sales, Nohshad Shah, wrote in a note. “With so much of the economy and stock market now levered to the AI trade, there is precious little margin for error just as the other risks threaten to bite,” he wrote.
- Shah said tariffs, fiscal stimulus and elevated energy prices have made AI investments more expensive to finance and operate, while public opposition to data center construction could slow projects and raise costs. He described capex itself as “a two-sided risk,” since spending cuts raise doubts about the investment cycle while further increases raise questions about financing, execution and returns.
- The warning lands after a sharp unwinding of AI bets sent technology stocks tumbling last week, while risk-off signals in credit markets climbed to their highest in more than a year. Anthropic filed for its IPO on Monday, becoming the first company primarily focused on developing AI models to go public.
- The debate among prominent investors is widening. Citadel’s Ken Griffin has warned of a bubble, Blackstone President Jon Gray says there is no cause for concern with demand “almost parabolic,” and Citadel co-CIO Pablo Salame said AI’s capital needs are clashing with wary lenders.
What Happened?
In a note, Citadel Securities’ Nohshad Shah said the selloff in technology stocks suggests investors are becoming more demanding about whether AI spending will ultimately generate sufficient profits. He said the US has so far absorbed pressure from tariffs, fiscal stimulus and energy costs because earnings and confidence remained strong. A sustained retreat in AI investment and financing, however, could threaten the growth and household wealth that have cushioned the economy from higher costs. His comments echo Griffin, who said last week that American companies are grappling with how much they spend on AI and how much value they can extract from it.
Why It Matters?
Shah’s point is that AI is no longer just a sector bet: it is supporting economic growth, corporate earnings and household wealth through stock market gains. That makes the trade vulnerable from both directions, because cutting spending would undercut the investment story while raising it adds financing and execution risk. Rising borrowing costs and stress in credit markets make the financing side more sensitive, especially for capital-hungry AI builders. The view from a major market maker adds weight to a debate that has split some of Wall Street’s best-known investors.
What’s Next?
Upcoming big tech capex guidance will be the next test of whether investors reward or punish more AI spending. Credit market risk signals and the reception for Anthropic’s IPO will show whether funding for AI remains open. Any evidence of slower data center projects due to local opposition would support Shah’s concerns. A renewed tech selloff would put the household wealth effect he highlights into focus.
Affected Tickers and Coins: QQQ, SPY, BX
Source: Bloomberg
