The unwinding of the AI trade will have bigger consequences than we think

The recent decline in the AI trade trade seems to be the harbinger of a larger disruption to come, warns industry expert Liz. The surge of capital that fueled many high-flying stocks and debt deals is starting to wane, putting a damper on growth. Despite OpenAI's ambitious goal of raising $30 billion, the company is likely to fall short of its target. Lenders are now viewing SpaceX, once an investment-grade company, as a risky bet on a struggling startup.

The AI-powered trade, driven by a mix of FOMO (fear of missing out) and the greater fool theory of investing, is now fading away. The market is beginning to sober up and separate the winners from the losers. The fallout could be far-reaching, as the AI boom has pulled in companies outside of Silicon Valley, making the unwind impact industries beyond tech.

Glassmaker Corning, which saw its stock double in the first half of the year after a $6 billion deal to outfit Meta's data centers, is now seeing much of its gains evaporate. Modine, a maker of car radiators that spun off its data center business to focus on climate solutions, is trading lower than before the spinoff announcement. Even traditional players like Sherwin-Williams and HVAC-maker Carrier are in the midst of pivoting to the AI market.

The extent of the unwind is clear: Bloomberg's analysis of corporate and regulatory filings and credit deals reveals that the market's dependence on technology, primarily AI, has reached record levels, accounting for more than 50% of the S&P 500's market cap. As the market reassesses its investments, the consequences of this unwinding will reverberate across a wide range of industries.