Whether artificial intelligence spending can translate into sufficient revenue and profit has become a central test for U.S. equity valuations. Jeremy Siegel, an economist at WisdomTree, has warned that the Nasdaq Composite could fall by as much as 30% if companies’ continued investment in AI fails to generate the returns investors expect.
The warning comes as markets reassess the current AI investment cycle. The Nasdaq has a heavy weighting toward large technology companies and AI-related businesses, meaning valuation changes at a small number of firms can amplify swings in the broader index. Investors are watching not only the technology itself, but also whether spending on data centers, semiconductors and cloud infrastructure can create sustained demand—and whether the companies involved can ultimately improve cash flow and profitability.
AI Returns Become a Key Nasdaq Risk
Siegel has repeatedly highlighted the potential pressure created by AI capital spending. He has compared the current cycle with previous technology investment booms, noting that periods of rapidly rising real demand have also encouraged companies to expand capacity aggressively. Once supply exceeds actual demand, however, industry returns can come under pressure, leaving the most aggressive investors facing a longer wait for profits to materialize.
That historical pattern has put greater focus on how major technology companies finance their expansion, the scale of their capital expenditure and the returns generated by those investments. If companies need to keep issuing debt or rely on more expensive financing to support AI infrastructure, higher interest rates and tighter credit conditions could put additional pressure on valuations. Last week, concerns over AI-related financing and planned bond issuance by hyperscale cloud providers affected the market, with the pressure at times spreading from technology stocks to smaller companies.
Oil, Treasury Yields and Volatility Add Pressure
The debate over AI returns is unfolding alongside other headwinds for growth stocks. Higher oil prices, rising U.S. Treasury yields and an increase in the VIX volatility index have all added to valuation pressure. Higher yields generally reduce the present value assigned to future cash flows, while rising oil prices can lift inflation expectations and make investors more cautious about the path of interest rates.
The Nasdaq Composite closed at 26,140 in the previous session, down 2.15%, marking its weakest weekly performance since June. The index fell about 4.5% for the week. The decline showed that macroeconomic variables beyond the AI theme can also influence the pricing of high-valuation technology stocks.
Intraday Rebound Leaves Earnings Questions Unresolved
In the following session, the Nasdaq Composite rose as much as 1.8% intraday, approaching 26,600 around midday, with semiconductor and AI infrastructure stocks leading the advance. The gain narrowed as trading progressed, but the index remained higher and ultimately closed up 1.11% at 26,430.89.
The S&P 500 also advanced, while the Dow Jones Industrial Average was broadly flat. The rebound provided temporary relief after the previous week’s selling, but it did not resolve questions about the AI investment cycle. Upcoming earnings, capital-spending plans, debt-financing costs and the revenue generated by AI operations will continue to determine whether investors are prepared to maintain current valuation levels. For the Nasdaq, the central risk has shifted from technology expectations alone to whether the scale of investment can be converted into sustainable commercial returns.