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Investors weigh risks that could derail Wall Street’s AI-driven rally

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Artificial intelligence has fueled a powerful stock market rally since 2022, but investors are increasingly alert to the potential risks that could threaten the “AI trade” underpinning record market highs. Citigroup estimates nearly half of the S&P 500’s $57 trillion market capitalization now has “high” or “medium” exposure to AI, making the technology a defining force on Wall Street.

The S&P 500 is up 13% this year, while the Nasdaq Composite has gained 17%, driven largely by tech and AI-linked companies. Yet analysts warn that the sector’s strength also makes it vulnerable to shocks. Concerns have surfaced before — from China’s launch of the low-cost AI model Deepseek to fears about runaway spending on data centers — though markets have repeatedly rebounded.

“There’s a lot of growth priced in,” said Steve Lowe of Thrivent Financial. “That’s the concern — whether the expectations can really hold up.”

Massive capital spending remains a central focus. Barclays projects that annual AI-related infrastructure investment by major “hyperscalers” — including Microsoft, Amazon, Alphabet, Meta, and Oracle — will double to $500 billion by 2027. While these companies generate vast cash reserves, analysts caution that overspending could pressure margins or lead to greater leverage.

Others highlight systemic risks from the close financial ties within the AI ecosystem, such as Nvidia’s recent $100 billion commitment to OpenAI. Energy infrastructure is another growing concern, with power supply seen as a potential bottleneck for new data centers.

Some investors remain bullish over the next 12 to 18 months, but warn that any slowdown in AI spending or signs that investments aren’t yielding expected returns could shake market confidence. “If it starts to look like the payoff isn’t coming,” said Patrick Ryan of Madison Investments, “that could be what finally trips the trade.”

Crypto firms’ tokenized stocks spark investor protection concerns

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Crypto companies are racing to launch stock-backed tokens, but traditional financial firms and regulators are sounding alarms over potential risks to investors and market stability.

Encouraged by President Trump’s pro-crypto policies, major players such as Robinhood, Gemini, and Kraken have rolled out tokenized stock products in Europe, with Coinbase and Dinari seeking U.S. approval. Even Nasdaq has proposed offering tokenized shares — a sign that the concept is moving into mainstream finance.

These blockchain-based instruments are designed to mirror traditional equities while enabling 24/7 trading and instant settlement. Their combined market value has surged to $412 million from just a few million a year ago, according to RWA.xyz. But critics warn that many of these products lack ownership rights, dividends, and regulatory safeguards, making them more akin to derivatives than stocks.

“There’s a real risk investors don’t know what they’re buying,” said Diego Ballon Ossio, a partner at Clifford Chance. Legal experts say inconsistent rights and disclosures across issuers could undermine market integrity.

While some firms like Kraken and Ondo Finance claim to fully back their tokens with underlying assets, others — including Robinhood’s tokens pegged to OpenAI — have faced regulatory scrutiny for using derivative structures.

Regulators in both the U.S. and Europe are divided over how to classify and supervise these products. Financial groups including Citadel Securities and SIFMA argue that tokenization should not bypass investor protection rules, warning that liquidity could fragment across unregulated markets.

AI Chipmaker Cerebras Withdraws U.S. IPO Filing After $1.1 Billion Fundraising Round

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Cerebras Systems, the California-based AI chip startup seen as one of the most promising challengers to Nvidia, has withdrawn its planned U.S. initial public offering (IPO), according to a regulatory filing on Friday. The decision takes effect immediately and comes just days after the company closed a massive $1.1 billion funding round.

The move surprised some investors given that U.S. IPO activity has recently rebounded sharply, buoyed by surging enthusiasm for AI-related stocks. Recent debuts, such as Fermi’s data center REIT listing, have drawn strong investor demand, reversing a slump caused by trade-policy and market uncertainty earlier in the year.

Analysts said the withdrawal likely reflects strategic timing rather than weak market sentiment. “Given that Cerebras just very recently completed a sizeable fund raise, it is of no surprise that they are holding off to pursue the IPO at this time,” said Josef Schuster, CEO of IPO research firm IPOX.

Cerebras’ latest financing round—led by Fidelity Management & Research and Atreides Management—valued the company at $8.1 billion and included participation from Tiger Global, Valor Equity Partners, and 1789 Capital, a fund partially linked to Donald Trump Jr.

Despite withdrawing the IPO filing, CEO Andrew Feldman emphasized that the company still intends to go public eventually. “We’re continuing to execute on our roadmap,” he said earlier in the week, noting that Cerebras’ focus remains on scaling production and commercialization of its high-performance AI chips designed to accelerate the training of large models.

The company had initially filed for a Nasdaq listing last year, but the process was delayed by a U.S. national security review of a $335 million investment from G42, an Abu Dhabi-based cloud and AI firm. That review reportedly examined potential concerns about foreign influence and technology transfer.

Industry observers view Cerebras’ decision as a pause, not a retreat. “This is more a company-specific strategic decision and does not tell us anything about the state of U.S. IPO sentiment, which we view as exceptionally strong,” Schuster added.

Founded in Sunnyvale, California, Cerebras Systems specializes in ultra-large AI processors and computing systems, including its flagship Wafer Scale Engine (WSE), a chip designed to massively outperform traditional GPUs in AI workloads. The company has become a key player in the rapidly expanding AI hardware ecosystem—one now defined by fierce competition, colossal valuations, and geopolitical scrutiny.