Apollo Global Management Chief Economist Torsten Sløk warned on Tuesday that the stock market could face a painful repricing if returns from massive artificial intelligence investment fail to materialize as quickly as investors expect. Sløk stated that markets may be too optimistic about how fast AI spending will translate into earnings growth, even as U.S. equities continue rallying on AI enthusiasm. The NASDAQ 100 is currently on track for one of its strongest quarters in years. A market repricing occurs when investors sharply adjust stock valuations after expectations change, often leading to significant declines in share prices.

The current AI bull thesis assumes that massive capital spending will quickly translate into productivity gains, margin expansion, and stronger corporate earnings. Sløk wrote that this creates a dangerous divergence between aggressive, front-loaded valuations today and a much slower cash flow reality. He noted that equity markets priced for instant earnings growth will face a painful repricing if the productivity "hockey-stick" takes five years rather than five months.

AI Spending Boom Meets ROI Questions

Sløk’s warning coincides with a surge in AI infrastructure spending across the technology sector. Major hyperscalers including Amazon.com Inc, Microsoft Corp, Alphabet Inc, Meta Platforms Inc., and Oracle Corp are collectively expected to spend about $805 billion in capital expenditures in 2026, according to estimates from Morgan Stanley. Meanwhile, Goldman Sachs estimates AI-related spending is running at an annualized $650 billion and could exceed $800 billion by the end of 2026. Investment is flowing into chips, servers, memory, power infrastructure, and data centers.

Some analysts argue the spending is justified because demand already exists. CNBC’s Jim Cramer recently defended the spending spree, arguing cloud providers are not building AI infrastructure speculatively but racing to meet existing demand.

Not Every Industry Moves at Tech Speed

Sløk argued that the biggest risk is not AI demand itself but the pace of monetization outside the technology sector. He said there is little evidence that AI is meaningfully improving margins in slower-moving sectors such as healthcare, banking, insurance, energy, manufacturing, transportation, real estate, education, and legal services. Sløk warned that AI adoption in these industries may take years to generate meaningful financial returns.

This caution arrives as policymakers also monitor AI’s macroeconomic effects. Cleveland Federal Reserve President Beth Hammack said on Tuesday that surging AI infrastructure demand could keep inflation elevated, noting hyperscalers appear willing to pay "almost any price" for critical inputs. Sløk also flagged rising AI operating costs as an emerging concern, stating companies are increasingly focused on token optimization to reduce AI compute usage. He concluded that companies will slow their AI spending if they do not see ROI quickly, and the current focus on cost reduction is an early warning that AI implementation could be a bumpier, slower road than expected.

US technology stocks rallied on Monday as semiconductor shares rebounded from last week's sell-off, with investors betting that the sector's investment boom will continue to support corporate earnings. The tech-heavy Nasdaq 100 led the advance, climbing 1.5% to 29,566. The S&P 500 added 0.9% to 7,417, while the Dow Jones Industrial Average rose 236 points, or 0.5%, to 52,112.

Magnificent Seven and Chipmakers Surge

Tesla Inc. jumped 5.8%, Alphabet Inc. gained 3.9%, and Amazon.com Inc. rose 3.7%, while Meta Platforms Inc. advanced 2.5%. Tesla's rally followed a tweet from Elon Musk stating the company was rolling out a new version of its Full Self Driving (FSD) driver-assistance hardware to owners with AI3 hardware. Chipmakers were a significant source of gains, with the iShares Semiconductor ETF rallying 2.8%, partially recovering from a 5.9% drop on Friday. Astera Labs Inc., Applied Materials Inc., and KLA Corp. were the top gainers in the sector, rising 14%, 12%, and 9%, respectively.

Space Stocks Rally on M&A News

The biggest mover within the Russell 1000 was Iridium Communications Inc., which soared 22.3% after Rocket Lab Corp. agreed to acquire the satellite operator for roughly $8 billion. The deal offers $54 per share in cash and stock to secure Iridium's L-band spectrum. This acquisition ignited the broader space sector, with AST SpaceMobile Inc. jumping 15.6%, further boosted by news that its BlueBird 8, 9, and 10 satellites are now operational in orbit.

Market Performance and Sector Movers

Consumer discretionary led sector performance, driven by Amazon and Tesla, while communication services and technology sectors also gained. Roblox Corp. rallied 14.6% after an upgrade from Arete Research. Conversely, TopBuild Corp. fell 13.6% amid concerns over its pending merger with QXO, and Verizon Communications Inc. dropped 6.6% following its removal from the Dow Jones Industrial Average.

Major Indices Performance

Data updated by 12:20 p.m. ET.

Russell 1000 Top Gainers

Russell 1000 Top Losers