What the bears are getting wrong on AI - and why these stocks will keep climbing the wall of worry

By Barbara Kollmeyer

Alpine Macro says the AI story 'remains intact'

All the big worries over AI right now, have a logical retort, says Alpine Macro.

As markets sit tight ahead the Fed decision, with the S&P 500 SPX still unable to scale a new record, there's action in the tech corner. Nvidia is getting a small bump on news it will be able to sell some AI chips to China.

Perhaps months ago this might have meant a bigger gain, but AI stocks are working a lot harder for advances as investors continue to question whether their big investments will pay off.

Our call of the day from Canada-based global investment research firm Alpine Macro says these stocks will climb the AI wall of investor worries and concludes that the investment story remains "intact," with a fresh look at where to invest.

"The key takeaway is that these risks are, so far, contained and should not derail the AI story," said Henry Wu, chief quantitative strategist.

The first such worry is record-breaking capex spending, which Hu says rather than a risk, is a "structural rise in technology's share of total investment." As well, he notes that the tech investment boom of the 1990s was much bigger, and really, this spending isn't set to go on forever anyway.

"Investment is expected to ramp up sharply in 2025 and 2026, but to decline as a share of revenue from 2026-2027 for most hyperscalers," he says.

Related to this are concerns about too much leverage being used to fund AI, of which Oracle is the poster child. Wu says total debt issuance is still pretty small and much of that has been funded from cash flow.

On that note, Wu sees a "sore underexposed" bond market to the AI theme, noting that tech and adjacent companies count for 40% of the equity market, but just 6% of the bond market. Bondholders had twice as much exposure to tech in the late 1990s as they do now, he says, adding that according to Morgan Stanley, the corporate bond market will provide less than 10% of funding.

As for circular finance concerns, Wu views companies investing in their clients, such as Nvidia and OpenAI, simply "ensures closer integration of technology road maps with their ecosystems."

Another concern, raised of late by investor Michael Burry, centers on possible AI chip depreciation. Wu says those risks are overstated and instead reflect "faster-than-expected productivity gains." For example, older chips do not see a decline in computation capacity just because a new one is released, he says. Also, China simply can't fill its insatiable demand for chips with its domestic supply, says Wu.

The last rung on that wall of worry is whether a shift in tech leadership could bring about another DeepSeek moment, when AI stocks slumped in the wake of the release of the Chinese model. According to Wu, it's a "mug's game to try to pick winners and predict technological breakthroughs."

"Instead, the key question for investors is how these developments affect the overall AI ecosystem," he said. Google's recent advances represent healthy competition, and Wu believes those that change market leadership are "net positive for the sector as a whole."

So what are Wu's recommendations for investors willing to look past those AI worries? First, investors should prioritize "picks-and-shovel plays" in AI, as value accrues to bottleneck layers - lithography, memory, advanced logic fabrication and chip design, he says.

Wu is now adding Google parent Alphabet (GOOGL) to basket, which includes SK Hynix (KR:000660), Samsung (KR:005930), Micron (MU), Nvidia (NVDA), ASML (ASML), TSMC (TSM) , Huawei, Semiconductor Manufacturing International Corporation (HK:981) and ChangXin Memory Technologies, which reportedly plans to go public in China in 2026.

Another theme Wu thinks investors should watch: the ramp-up of AI-related banking activity. "We remain overweight financials and are bullish on banks in particular. This sector is ripe for deals," he said.

And third, given his view that AI-related companies are mostly underleveraged, AI-related debt could see tighter spreads given undersupply.

"Investors should also consider relative value trades between the stocks and bonds of various hyperscalers," he says. One example he points to - Meta stock is cheap versus its debt, while the opposite is true for Oracle.

Read: Oracle is the canary in the coal mine for Big Tech's debt-fueled AI spending spree

The markets

U.S. stocks SPX DJIA COMP are mixed as trading begins. Bitcoin (BTCUSD) is slipping and silver (SI00) is pushing higher.

   Key asset performance                                                Last       5d      1m      YTD      1y 
   S&P 500                                                              6846.51    0.25%   0.00%   16.41%   13.45% 
   Nasdaq Composite                                                     23,545.90  0.56%   0.33%   21.93%   19.60% 
   10-year Treasury                                                     4.171      7.60    5.00    -40.50   -5.40 
   Gold                                                                 4209.1     -1.31%  2.08%   59.48%   56.88% 
   Oil                                                                  58.67      -1.41%  -2.30%  -18.37%  -13.91% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

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The buzz

Nvidia shares (NVDA) are up around 1% after President Donald Trump announced a policy allowing the sale of some of its chips to China, as long as the U.S. government gets a 25% cut of the business.

Shares of asset manager Ares Management (ARES) are up nearly 8% on news of being added to the S&P 500.

Toll Bros. stock (TOL) is dropping after a cautious outlook on house deliveries from the homebuilder.

AutoZone (AZO) is slipping after an earnings miss for the auto-parts manufacturer.

PepsiCo (PEP) reached a deal with activist investor Elliott Investment Management to spur growth in its food business with cost cuts and lower prices.

The National Federation of Independent Business optimism index edged up in November, but also the uncertainty index. A delayed October job openings report is due at 10 a.m.

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The chart

The Dow Jones Transportation Average DJT has been on a roll. The index closed Friday at a one-year high to cap a 10-session winning streak, the longest winning stretch since August 2020. Transports were slow to recover from the April tariff selloff, but that has been changing. As MarketWatch's Tomi Kilgore reports, most of the 20 stocks that make up the index - Alaska Air (ALK), United Airlines (UAL), FedEx (FDX) - are cheaply priced.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   GME     GameStop 
   TSM     Taiwan Semiconductor Manufacturing 
   AMD     Advanced Micro Devices 
   PLTR    Palantir Technologies 
   AAPL    Apple 
   AMZN    Amazon 
   XCUR    Exicure 
   META    Meta 

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-Barbara Kollmeyer

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12-09-25 0940ET