Infrastructure stocks tied to the artificial intelligence boom have shed $4.2 trillion in market capitalization globally since June, as investors reverse course on essential hardware plays.
The sharp pullback erases nearly half of the $9.4 trillion in value accumulated by manufacturing, utility, and mining firms over the preceding 12 months, according to the Financial Times, as reported by Yonhap. Until just a few months ago, markets piled into companies making everything from jet engines retrofitted to power hyperscale data centers to advanced fiber optics needed to connect AI server racks.
Caterpillar and Corning are among major infrastructure stocks cut in half. HVAC equipment maker Comfort Systems USA and fiber-optics manufacturer Corning have each fallen about 50% from earlier highs. Allient, which makes motion-control products, is down 35% from its record set in October.
Analysts point to excessive “AI growth stock” premiums attached to traditional industrial companies as the root cause of the sell-off. Paul Kedrosky, a venture investor and researcher at the Massachusetts Institute of Technology, said investors made a critical mistake by valuing conventional industrial firms like chipmakers.
“When you talk to hedge fund people, there was this endless idea that everything is a growth stock now,” Kedrosky said. “It’s a ridiculous idea.”
Markets are growing increasingly worried that a bubble could ultimately burst, as hyperscale cloud operators have ramped up capital expenditure through heavy borrowing while political opposition to new data center projects in the United States has intensified.
“A lot of institutional money went blindly into these investments, which is why some company valuations were probably formed too optimistically,” said Brett Ryan, senior US economist at Deutsche Bank.
The tech trade reversal extends beyond Wall Street. In Australia, Deloitte estimates that 37 data-centre projects worth around A$141 billion are currently in the investment pipeline. However, the Reserve Bank has warned that the construction boom adds demand to an economy operating close to capacity, potentially fueling inflation before hoped-for productivity benefits emerge.
Despite the broader market rout, some analysts argue that the fundamentals of infrastructure suppliers remain solid because equipment and material demand still outstrips supply. According to the latest US government data, American spending on data center construction over the 12 months through September totaled $96 billion, even excluding IT equipment and semiconductors.
Earlier coverage: SoftBank Posts $7 Billion Loss on U.S. AI Data Center Equipment Costs