Weekly Market Recap: Stocks Hold Near Records as Investors Rotate Away From AI Leaders

Introduction

Global equity markets ended the week at or near record highs, but the headline numbers masked notable shifts beneath the surface. Investor behavior showed clear signs of rotation as concerns emerged around the cost of artificial intelligence infrastructure and its broader impact on established business models. Technology mega-caps, which have driven much of the recent rally, faced pressure after Amazon announced a sharp increase in planned capital expenditure for AI build-out. At the same time, fears about legal-AI disruption weighed on media and private credit names, adding to the sense that leadership in the market may be changing.



Markets Stay Elevated Despite Volatility

Major equity indices continued to trade close to historic highs, supported by resilient economic data and expectations that interest rates may stabilize. However, daily moves showed growing divergence between sectors. Defensive and value-oriented stocks outperformed, while several growth-heavy segments saw selling pressure.

This pattern suggests that investors are becoming more selective rather than broadly optimistic, even as overall market levels remain strong.



Rotation Becomes the Dominant Theme

Rotation was the defining feature of the week. Capital flowed out of some of the largest technology names and into areas perceived as less exposed to near-term risk. Investors appeared to be reassessing valuations after a strong run driven by AI-related optimism.

Rather than exiting equities entirely, many market participants shifted exposure toward sectors with steadier earnings and lower capital requirements.



Amazon’s Capex Announcement Shakes Tech Sentiment

A key catalyst for the rotation was Amazon’s disclosure that it plans to raise capital expenditure to around US$200 billion by 2026. The increase, primarily tied to AI infrastructure and data center expansion, exceeded previous market estimates.

While the long-term strategy aligns with the growing demand for AI services, the scale of spending raised concerns about margins, cash flow, and return on investment in the near to medium term.



AI Build-Out Costs Raise Investor Questions

The announcement highlighted a broader issue facing the technology sector: the rising cost of building and maintaining AI infrastructure. Data centers, specialized chips, and energy requirements represent substantial financial commitments.

Investors began questioning whether revenue growth from AI applications will arrive quickly enough to justify such large investments, particularly if competition increases and pricing power weakens.



Tech Mega-Caps Feel the Pressure

Following Amazon’s news, other technology mega-caps also faced selling pressure. The market treated the announcement as a signal that AI leadership comes with higher costs than previously assumed.

Even companies not directly raising capex forecasts were affected, as investors reassessed the sustainability of elevated valuations across the sector.



Shift Toward Balance Sheet Discipline

As concerns over spending grew, companies with strong balance sheets and disciplined capital allocation gained favor. Investors showed renewed interest in firms with predictable cash flows and limited exposure to large investment cycles.

This shift suggests a temporary pause in the market’s willingness to reward aggressive expansion strategies.



Legal-AI Disruption Concerns Emerge

Beyond technology infrastructure, another theme affected markets: legal-AI disruption. Advances in AI tools capable of analyzing legal documents and generating research outputs have raised questions about the future of traditional legal information services.

These concerns hit Reuters’ parent company, which derives a significant portion of revenue from legal and professional information products.



Impact on Media and Information Providers

The sell-off in Reuters’ parent reflected fears that AI could reduce demand for traditional subscription-based research platforms. Investors worry that clients may turn to lower-cost or automated solutions.

While these technologies are still developing, the market response showed how quickly disruption narratives can influence stock prices.



Spillover Into Private Credit Names

Concerns around legal-AI did not stop with media companies. They spilled into private credit and alternative asset managers, including Apollo, Blackstone, Blue Owl, and KKR.

These firms have exposure to legal services, data providers, and professional services through their investment portfolios, making them sensitive to perceived disruption risks.



Why Private Credit Stocks Reacted

Private credit firms rely on stable cash flows from portfolio companies. Any threat to business models within those portfolios can affect valuation assumptions and future returns.

The market reaction suggested heightened sensitivity to AI-driven change, even when the direct impact remains uncertain.



Investor Caution in Alternative Assets

The moves in private credit names also reflected broader caution around alternative assets. As interest rates remain elevated, funding costs and valuation pressure have already been under scrutiny.

The added layer of technological disruption reinforced a more cautious stance among investors.



Equities Hold Up Due to Broader Support

Despite these pressures, equity markets overall remained resilient. Gains in sectors such as healthcare, energy, and consumer staples helped offset weakness in technology and financial services.

This balance prevented broader indices from retreating significantly, even as leadership shifted.



Economic Data Provides a Backdrop

Macroeconomic data released during the week offered mixed but generally supportive signals. Employment figures remained stable, and inflation showed signs of moderation in some areas.

These factors helped anchor market confidence and limited downside momentum.



Valuation Concerns Come Back Into Focus

After months of strong performance, valuations in certain sectors had become stretched. The recent rotation indicates that investors are revisiting fundamentals rather than relying solely on growth narratives.

This reassessment may lead to a more balanced market in the coming weeks.



Short-Term Uncertainty, Long-Term Questions

In the short term, volatility may persist as markets digest higher investment costs and technological disruption. Longer term, the key question is whether AI-driven growth can deliver sustainable returns.

Companies that manage costs effectively while capturing new revenue opportunities may regain investor favor.



What to Watch Going Forward

Upcoming earnings reports will be closely watched for guidance on spending plans and margin impact. Investors will also monitor how quickly AI investments translate into revenue growth.

Developments in legal-AI adoption and regulatory response may further influence sentiment.



Bottom Line

The past week showed that strong headline market levels can coexist with significant internal shifts. Equities remained near record highs, but rotation away from AI-heavy leaders reflected growing concern over rising costs and disruption risks.

Amazon’s increased capex plans highlighted the financial demands of AI build-out, while legal-AI fears pressured media and private credit names. The overall picture suggests a market that is not retreating, but recalibrating. Investors appear focused on sustainability, cost discipline, and realistic expectations as the next phase of the market cycle unfolds.