Two Indicators Signal: AI Capital Spending Boom May Be Cooling Off
0xBroomberg
Former Leuthold Group chief strategist Jim Paulsen flags two simultaneous warning signs — AI stocks underperforming and core capital-goods orders falling sharply — suggesting the AI capex boom may be entering a slowdown phase.
What are the two indicators?
First: AI-related stocks have recently underperformed the broader market, signaling that investors are pricing in a spending slowdown before the hard data confirms it.
Second: U.S. core capital-goods orders have dropped sharply, while oil prices, bond yields, and the dollar have all strengthened in tandem — all three pointing to softer capex ahead.
This means → one indicator reads "stock-price expectations," the other reads "real-economy orders." Soft data and hard data are cross-confirming the same signal.
Why did tech stocks fall on higher spending plans?
During Q2 earnings season, Alphabet, Tesla, and Meta each announced plans to maintain or increase capex — yet all saw their shares fall post-earnings.
In plain terms = investors no longer care about "how much you spend." They are asking "when will that spending generate returns."
This reflects a shift in market sentiment from "more AI spending is bullish" to "show us the payoff." The size of the check is no longer the catalyst.
What should investors watch next?
Paulsen is direct: if U.S. core capex declines — or even flatlines — over the next six months, it will force a major expectation reset among investors who bought into the AI-spending narrative.
This means → whether core capital-goods orders stabilize is the key test of whether the current AI capex story holds.
In plain terms = the narrative can sound compelling, but if orders don't follow, the market won't buy it.
If U.S. core capital spending declines over the next six months — or even just flatlines — it will force a major mindset adjustment among the many investors who have embraced the AI spending narrative.
Jim Paulsen
Former Chief Investment Strategist, Leuthold Group
(public market commentary)
Content is for reference only, not financial advice.