The artificial intelligence trade is one that’s become integral to the U.S. economy, and in some ways, to the global economy. That’s because the sheer size of these AI behemoths means that more and more capital is becoming concentrated around one trend, which if unwound, could send ripple effects across global markets. Most investors are certainly not banking on such a wind down, but it’s also true that leverage and valuations have increased to levels we haven’t seen in decades.
In that regard, there are many pundits, analysts and investors who believe that the absolute levels of AI-related spending we’re seeing right now are likely unsustainable. There’s good reason for such a thought process, with budgets for most companies on compute skyrocketing to incredible levels in recent years.
Among the top three stocks many analysts have pointed to as companies that could be looking to cut down on their AI spending in this current environment are the following names.
Meta Platforms (META)
Among the Magnificent 7 stocks I’m still bullish on, Meta Platforms (NASDAQ:META | META Price Prediction) is a company that’s tied itself to various growth trends over the years. Whether we’re talking about social media (the company is formerly known as Facebook, after all), the metaverse (hence, the name change) or artificial intelligence, this is a company that likes to ride growth trends to new all-time highs.
For investors who have stuck around for the ride, it’s been a profitable exercise. Meta has found a way to monetize the billions of eyeballs across its various platforms. Using AI to further grow its core businesses, but also position the company as a leader in ad targeting and recommendations, could benefit this stock in a big way over time.
The question of course, is what that return on investment will ultimately be. With the company’s share price surging on reports that it will tamp down spending (and probably do more layoffs) in its Reality Labs division (its metaverse efforts), this stock has been on the rise. We’ll have to see if similar announcements at some point bolster AI-related stocks down the line.
For now, the market is rewarding companies that continue to spend incredible sums on advancing their AI capabilities. If that tide turns, Meta may have another massive decision on its hands.
Palantir (PLTR)
One company that could certainly be negatively impacted by a slowdown in AI spending would be Palantir (NASDAQ:PLTR). Shares of the AI-enabled big data company have been on a tear in recent years, though some concern has started to bleed into this stock via its sky-high valuation of more than 120-times forward sales and 180-times forward earnings.
The company’s core Gotham, Foundry and AI Platform (AIP) are orchestration layers that help governments and enterprises utilize AI to improve decision making and business outcomes. The idea that much of the company’s demand has been pulled forward is another key concern for some investors, with the pace of spending on these platforms potentially slowing, particularly if budget deficits widen and corporate balance sheets are viewed at risk by investors.
If AI spending slows, I’d still expect to see Palantir produce considerable growth, but not at the rate the company has been growing of late. Thus, the question around this stock really boils down to an individual investor’s assessment of where they see Palantir’s top and bottom line growth rates coming in at the end of the year.
I’m of the view that longer sales cycles, smaller deal sizes, and a confluence of the factors above could lead to more downside in Palantir stock in 2026 and beyond. Some companies are priced too richly right now, and it’s really that simple. Palantir is one such company I’m most concerned about at this point in the AI cycle.
Nvidia (NVDA)
At the end of the day, if AI spending really does slow to the degree some in this space believe, Nvidia (NASDAQ:NVDA) could have some of the most intense downside potential. Just looking at the company’s incredible $4.2 trillion market capitalization, there’s plenty that still needs to go right in order for the company to grow into its current valuation.
As the centerpiece of the AI revolution, Nvidia’s high performance chips remain integral to the whole narrative around the buildout this sector expects to see in the years to come. That said, with individual tech companies now building their own chips, and enterprises looking to build AI factories to power their applications and internal buildouts, the question remains whether Nvidia chips will power these factories, or other cheaper (but similarly powerful) chips could do the trick.
For now, Nvidia has a stranglehold on the spending that’s going into AI initiatives. Again, I’m not 100% certain this dominant market share will hold up over the long-term. For those concerned about a slowdown in AI spending, Nvidia’s valuation is one to watch, given its size and importance to many indices.
I still think Nvidia’s upcoming earnings reports over the course of the next year are likely to blow away expectations, as they have in the past. AI spending remains robust. Now, investors need to factor into their models what future growth rates in spending will be over time, and that’s a much more difficult exercise in my view.
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