AI Stocks: Making Sense of the Market Swings

There doesn’t seem to be a day that goes by that investors aren’t talking about artificial intelligence (AI). Whether it’s one of the big tech companies revealing billions in AI spending, an announcement of a new deal between AI operations, fluctuating stock prices or people questioning just where exactly this will all end up, trying to keep up with everything that’s happening is enough to make even the savviest of investor’s head spin.

So what exactly is happening in the AI sector and how can investors make sense of it all? Here’s what to know.

What’s been happening with AI stocks?

Markets’ reactions to AI advancement has generally been pretty optimistic: industry leading companies have seen stocks jump as they’ve increased spending to develop the technology. Investment in data centres – which provide massive computing power needed to run these solutions – alone has been in the billions, with nearly US$7 trillion expected to pour into building AI infrastructure by 2030.¹ But as share prices keep climbing, some are asking whether AI is a bubble about to burst.

Lately, shares in some of the big tech businesses, such as Amazon, Meta and Alphabet, have taken a hit because of plans to increase AI-related capital spending. During the most recent earnings season, Amazon announced that it expects to spend US$200 billion on data centres this year, $50 billion more than what analysts expected. Its stock fell by nearly 16 per cent over the following week.² In late January, Meta said it would increase its AI-related capital spending by 73 per cent in 2026, to between US$115 billion and US$135 billion;³ its stock price fell 9 per cent over the next four trading days.⁴ Alphabet revealed that it might double its spending, and its stock price fell by 7 per cent.⁵

Are investor fears overblown?

One reason why stock prices might have fallen on these announcements is that investors could be questioning whether the heavy spending on AI will pay off and justify the investment. What is certain is that more companies are adopting AI, meaning demand is increasing. McKinsey research indicates that AI adoption is surging globally, with 88% of organizations using it in at least one business function as of late 2025.⁶

A report from research firm Cognizant, published as part of the World Economic Forum Annual Meeting in January, said that AI could potentially tackle US$4.5 trillion worth of work across the U.S. alone.⁷ And a study by the Vector Institute in November found that the technology has already had a $100-billion economic impact across Canada. The study predicts that over the next decade, we’ll see another $298 billion in AI-driven economic growth and the creation of over 40,000 new jobs per year.⁸

What about circular deals?

A defining feature of the AI boom that’s creating additional concern has been “circular deals” – agreements between two or more companies where funds are flowing back and forth. In the case of AI, some tech giants fund startups, and the startups then use that capital to purchase products and services from those same tech companies.⁹ One worry is that circular spending makes firms more intertwined, which could lead to big, cascading losses if demand for the technology falls short of anticipated levels.¹⁰

These types of deals were a hallmark of the late-1990s dot-com era, when companies with minimal revenues pursued aggressive expansion. Webvan, an online grocery delivery company, exemplified this approach – filing for bankruptcy in 2001 following three years of heavy infrastructure spending and negligible revenue.¹¹

But some analysts aren’t overly concerned about this with AI because demand for the technology is real and rising alongside growing revenues, suggesting a more stable foundation.

So, is AI a bubble?

One big question around AI remains: is it a bubble – that is, when a rapid increase in share prices far exceeds the company’s intrinsic value.

Bubbles are usually driven by emotion and speculation rather than fundamentals, culminating in a collapse, which is why the question pops up whenever spending exceeds analyst expectations, a new software release doesn’t live up to the hype or people start questioning the long-term benefits of AI.

Some notable voices, like Amazon founder and former CEO Jeff Bezos, have argued AI is a type of bubble. He made the comments during Italian Tech Week in Turin, Italy, last fall. In the same talk, though, he noted that a potential bubble doesn’t change the fact that AI is “real” and it will bring “gigantic” benefits to society.¹²

The excitement around AI has often been compared to the dot-com bubble of the late 1990s and early 2000s – when internet stocks quickly gained popularity, then crashed – but there are key differences. The biggest one: the AI boom has largely been led by the “Magnificent 7,” a group of high-performing, market-dominating U.S. tech companies with big, established cash flows and strong balance sheets, whereas the dot-com hype was mostly driven by speculative startups with little to no revenue.¹³

“These are the biggest companies on Earth with real revenues, real earnings and real cash flow. They’re the ones predominantly driving all of this, at least at the moment,” says Marcello Montanari, Managing Director & Senior Portfolio Manager, North American Equities for RBC, said last fall in an interview. “That’s in contrast to the 2000 bubble, where many new companies were funded by the market but didn’t have self-sustaining businesses.”

What does this all mean for investors?

It’s difficult for anyone to predict what will happen next – which sector will bear the brunt of the next market rout, or whether investor fears will eventually settle down.

As with any time there’s disruption in the market, investors should stay disciplined. Cutting through the noise and remembering that market turbulence is not unusual should help you stay focused on your personal needs, goals and time horizon.