The stock market’s weak response to the Anthropic deal on Tuesday could signal the start of something worse for investors: an unwind of the artificial intelligence trade. Anthropic was the latest company to land a spectacular AI deal after Microsoft and Nvidia this week said that they will invest a combined $15 billion into the startup. The investment pushed Anthropic’s market valuation to the range of $350 billion, a stunning jump from a $183 billion valuation in September. If it were public, that would make the OpenAI rival bigger than American Express , Mcdonald’s or PepsiCo . But the stock market’s response to the Anthropic deal was telling. Not only did the major averages continue their recent tech-driven decline on Tuesday, with the S & P 500 falling for a fourth day and closing down 0.8%, but Microsoft and Nvidia also underperformed. Microsoft lost 2.7% on Tuesday and Nvidia dropped 2.8%. That’s unlike the reaction to prior announcements. In September, after Nvidia’s $100 billion commitment to OpenAI, the stock rallied nearly 4%. That same month, a $5 billion investment by Nvidia drove Intel to its best single day since October 1987. Behavior reversal “You’re starting to see the markets reverse their behavior,” said Peter Corey, chief market strategist at Pave Finance. “Where they were excited about new interlocking deals, more data centers, this is the first instance where we’re seeing a reversal of that, where it’s almost too much of a good thing. Which means people are getting worried that these companies aren’t allocating their resources properly.” “Now, this could be a one day thing, and it could be a selling climax, but this is not a good tone,” Corey continued. “This is very poor market tone.” JPMorgan traders noted the same. “Recently, even on days when stocks started lower, the positive AI headlines were enough to salvage a gain,” read the note. That trend “may be broken as investors worry about AI revenue circularity,” the bank’s trading desk said. Investors have been trimming their technology holdings all month and the Nasdaq Composite is down by nearly 5% in November. If Nvidia’s earnings on Wednesday satisfy investors, and the delayed nonfarm payrolls come in better than feared, there still may room for the stock market to see a year-end rally. Watching support In the S & P 500, technicians are carefully watching support at 6,550; if that level can hold, that would be a bullish signal for stocks. But Pave Finance’s Corey worries that the reaction to the Anthropic deal could prove to be a “watershed” moment for stocks, one that leads to a sustained bear market as tech valuations come back to earth — possibly in the coming year. A deep slide in tech could prove fatal to a market that has remained resilient in part because of massive spending for the AI buildout. That capital spending has in turn lifted stocks and supported spending by high-income consumers. Even true believers in AI worry that interlocking deals like the one in Anthropic make more companies vulnerable to failure, and reek of excess. The rise in debt issuance to fund the AI buildout also raises new risks for the market and the economy. And skeptics worry there may not be much return in the form of profits from large language models. “I just don’t think it’s worth the hundreds of billions of dollars that they think they can get back from it,” said Kim Forrest, investment chief at Bokeh Capital Partners. “Never invest in the science,” she said. “I mean, this is one of the things I really learned is, don’t fall in love with the science. What problem are they solving? Does it add value? You’ve got a winner. If not, it’s just interesting science.” If AI were to unravel, stocks would likely fall “a lot,” Forrest said.
