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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.”

MIT spinout Vertical Semiconductor raises $11 million to develop efficient AI power chips

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Vertical Semiconductor, a startup spun out of the Massachusetts Institute of Technology (MIT), has raised $11 million in funding to commercialize a new generation of gallium nitride (GaN) power chips designed to deliver electricity more efficiently to artificial intelligence data centers, the company announced on Wednesday.

Led by Playground Global, the funding will help the company bring its vertical transistor architecture to market. The technology aims to reduce the massive energy losses that occur when power is converted from grid-scale voltages to the tiny levels needed by microchips—losses that typically generate significant amounts of heat instead of usable power.

“That is power you are not delivering to computing tasks—it straight turns into heat,” said Matt Hershenson, a partner at Playground Global.

AI data centers, which power tools like ChatGPT, consume enormous amounts of electricity—comparable to that of entire cities. As a result, chipmakers including Renesas, Infineon, and Power Integrations are partnering with Nvidia to develop next-generation GaN power chips.

Vertical Semiconductor’s innovation lies in stacking transistor components vertically rather than spreading them horizontally, making the chips smaller, more efficient, and cooler. The company plans to deliver prototypes this year and begin full production in 2026.

The firm was co-founded by MIT professor Tomas Palacios and researcher Joshua Perozek, whose doctoral work laid the foundation for the technology. CEO Cynthia Liao, formerly of MIT Sloan, said the company’s chips could offer data center operators step-change energy savings rather than incremental improvements.

“We do believe we offer a compelling next-generation solution that is not just a couple of percentage points here and there, but actually a step-wise transformation,” Liao said.

UK’s Nscale to supply Microsoft with 200,000 Nvidia AI chips in major data center deal

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Nscale, a British artificial intelligence infrastructure company backed by Nvidia, announced on Wednesday that it will supply around 200,000 Nvidia AI chips to Microsoft under an expanded partnership aimed at scaling data center capacity across Europe and the United States.

While the financial details were not disclosed, the Financial Times reported that the deal could be worth up to $14 billion, based on similar contracts. The agreement will be executed in collaboration with Dell Technologies, which will help deploy the AI hardware across Microsoft’s hyperscale facilities.

The rollout will begin next year, with Nscale supplying Nvidia GPUs from its data centers in Texas and Portugal, the company said. The project also includes a joint venture with Norway’s Aker, which will provide 52,000 additional GPUs from Nscale’s hyperscale AI campus in Narvik, Norway.

The partnership reflects the surging demand for AI computing power, as tech giants including Microsoft, Meta, and Alphabet race to build infrastructure capable of training and deploying massive AI models. According to Citigroup, global AI-related infrastructure spending is expected to surpass $2.8 trillion by 2029.

Nscale, which raised $1.1 billion in September from investors including Aker and Finland’s Nokia, said the funds will accelerate its data center expansion and position the company as a key player in the global AI supply chain.