Five AI quirks and conundrums to watch this earnings season
SMH•AI-related stocks have driven 75% of S&P 500 returns, 80% of earnings growth and 90% of capital spending growth since ChatGPT launched in November 2022. Investors are weighing weak AI-company bonds, slowing growth in token spending, power shortages and whether future revenue can justify an estimated multi-trillion-dollar buildout.
1. Equities and debt diverge
AI-related shares have mostly risen even as bonds issued to finance AI investment have weakened. CoreWeave shares are down 13% this year, while its October 2031 bond has fallen more than 20% since its April launch and trades below 80 cents on the dollar; credit default swap spreads have also reached records for AI borrowers including CoreWeave, Oracle, Amazon, Alphabet and Meta.
2. Investment questions mount
Analysts disagree sharply on CoreWeave: HSBC forecast average returns through 2030 below the company's borrowing cost and set a $39 target, while Goldman Sachs raised its rating to buy and set a $106 target. Token usage continues to rise, but spending growth is slowing as token prices fall; meanwhile, Morgan Stanley estimates US data center developers could face a 30% to 40% power shortfall through 2028.
3. A high revenue bar
McKinsey and S&P Global estimate the six largest US hyperscalers will spend more than $7 trillion on data centers and other AI-related capital expenditure from 2025 through 2030. Columbia University's Stijn Van Nieuwerburgh estimates financing the AI buildout from last year to 2032 will cost $10.3 trillion; to earn a 10% return, he estimates annual revenue would need to reach about $3.55 trillion by 2032, while some analysts put the required figure above $4 trillion.
