This is a special post for quick takes by Annapurna. Only they can create top-level comments. Comments here also appear on the Quick Takes page and All Posts page.
The equity market is pricing an AI growth trajectory that does not fully account for the roadblocks that are starting to emerge.
AI investment has been one of the main drivers of equity returns, but sustaining that growth requires enormous amounts of infrastructure, capital and power. Political resistance to data centres is increasing, permitting and infrastructure constraints are becoming more relevant, and higher long-term interest rates are making the buildout more expensive.
I don't think AI spending needs to collapse for this to matter. If these constraints cause AI investment and earnings growth to come in below what the market currently expects, that could be enough to drive meaningful weakness in equities, particularly given how much of the market's recent performance has been tied to the AI theme.
I have now substantially reduced my equity exposure to the AI theme*