Everything is coming up roses for the AI trade
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Declines in tech stocks? Healthy movement. Local officials stopping data centers? Prevents overbuild. Valuations high? Well, they deserve to be.
Why it matters: Every risk for the AI trade is framed as a positive by Wall Street bulls who are adamant we are in the early stages of the AI revolution.
What they're saying: "I genuinely think the wall of worry is a good thing to climb," Jeffrey Favuzza, a tech strategist at Jefferies, tells Axios.
Between the lines: Let's run through the threats to the AI trade and then the bull case Wall Street is attaching to each of those.
1. Stock valuations are too high.
- Wrong! "Nvidia is being valued like a mediocre growth stock. It's obviously not," Vivek Arya, a senior analyst at Bank of America, mentioned during a 2026 semiconductor outlook call.
- When you consider the 50% sales growth expected for Nvidia, it is actually undervalued, several strategists who spoke with Axios say.
- Nvidia trades at 23 times earnings, the second-lowest ratio among the Magnificent 7. Cisco traded at 140 times ahead of the dot-com bubble.
- Tech stocks are also not ferociously rallying the way they once did, which suggests investors are choosier, which is "healthy," Gil Luria, sn analyst at D.A. Davidson, tells Axios.
2. Demand for AI will not materialize.
- Nope. OpenAI's weekly ChatGPT users just hit a record of 800 million.
3. Data centers are getting overbuilt.
- Great news! Local officials and state lawmakers are going to put a cap on data center growth as they start to push back on that infrastructure from both sides of the aisle.
- "That's a very healthy natural governor in this market," Favuzza says.
4. Too much money is being spent.
- Sure, these top tech firms are on average spending about two-thirds of their cash flow on AI infrastructure. Traditionally they spend very little.
- But "that cash was just collecting dust" before the rollout of AI, Arya at Bank of America said. In that view, AI spending is a way to create future growth and sales opportunities necessary to survive the AI revolution.
- More capex is bullish. Arya expects at least $1.2 trillion in capex by 2040.
5. Is AI ever going to make money?
- That comes down to monetization, likely in the form of advertising and probably coming first from OpenAI, which is widely believed to come early next year.
- New product releases are also expected to deliver more opportunities to monetize.
- Favuzza is also watching how OpenAI works with enterprises: The company recently hired former Slack CEO Denise Dresser as its chief revenue officer, indicating a push to sell to more businesses.
Reality check: Reframing negative signals as positive is "classic financial sentiment," says Paul Kedrosky, a venture capitalist who believes we're already seeing signs of the AI bubble bursting.
The bottom line: Throw out your business school investing textbooks. The rules of markets are changing in the face of the AI revolution, strategists argue.
Editor's note: This story has been updated to correct the spelling of Paul Kedrosky
