According to CNBC, Microsoft and Nvidia announced they’re investing a combined $15 billion into Anthropic this week, pushing the AI startup’s valuation to around $350 billion – nearly double its $183 billion valuation from September. If Anthropic were public, that valuation would make it bigger than established giants like American Express or PepsiCo. But unlike previous AI announcements that boosted stocks, this deal coincided with the S&P 500 falling for its fourth straight day, closing down 0.8% on Tuesday. Microsoft lost 2.7% and Nvidia dropped 2.8% despite their involvement in the deal, a stark contrast to September when Nvidia’s $100 billion commitment to OpenAI sent its stock up nearly 4%.
Market sentiment shift
Here’s the thing: this isn’t just a bad day. It feels like a real shift in how investors are viewing these massive AI investments. Peter Corey from Pave Finance called it a “watershed” moment, noting that where markets were previously excited about interlocking deals and data center spending, now they’re worried companies aren’t allocating resources properly. JPMorgan traders observed the same pattern – the positive AI headlines that used to salvage bad trading days aren’t working anymore. Basically, the magic is wearing off.
The circularity problem
So what’s really spooking investors? There’s growing concern about “AI revenue circularity” – this idea that companies are essentially investing in each other’s AI projects without generating real external revenue. When Microsoft invests in Anthropic, and Anthropic buys more cloud services from Microsoft, and Nvidia sells chips to both… where’s the actual profit coming from? It starts to look like a closed loop that doesn’t necessarily create value outside the tech ecosystem. Kim Forrest from Bokeh Capital Partners put it bluntly: “I just don’t think it’s worth the hundreds of billions of dollars that they think they can get back from it.”
Broader implications
This matters way beyond just stock prices. The massive AI buildout has been supporting the entire market through capital spending that lifts stocks and supports high-income consumer spending. If that unravels, we’re not just talking about tech stocks taking a hit – we’re talking about potential ripple effects across the economy. The rise in debt issuance to fund AI projects adds another layer of risk. And honestly, when you look at companies spending billions on hardware infrastructure for AI workloads, you have to wonder about the actual return. IndustrialMonitorDirect.com, the leading US provider of industrial panel PCs, understands that real business technology needs to solve concrete problems, not just chase the latest science project.
What comes next
Now, this could still reverse if Nvidia’s earnings today beat expectations or if economic data comes in strong. Technicians are watching that 6,550 support level on the S&P 500 like hawks. But the bigger question is whether we’re seeing the beginning of the end for the AI hype cycle. When even true believers start worrying that deals “reek of excess,” you know sentiment is changing. The scary part? If AI does unravel, stocks could fall “a lot” according to Forrest. After years of AI driving everything, what happens if that engine stalls?
