Artificial intelligence has become the top tail risk for markets, according to Bank of America’s Global Fund Manager Survey, with 45% of respondents citing an AI bubble in July, up from 28% the prior month. The five largest hyperscalers are expected to deploy over $1 trillion across 2025 and 2026, while Goldman Sachs estimates annualized AI-related spending could exceed $800 billion by the end of 2026. This concentration is reflected in the index, where the top 20 stocks now account for roughly 50.8% of the S&P 500 total market capitalization, a level without modern precedent. The Situational Awareness fund, which collapsed from $45 billion to approximately $10 billion in weeks due to concentrated AI positions, illustrates the fragility embedded at index scale. Yet 64% of S&P 500 companies reporting earnings have beaten consensus by at least one standard deviation, prolonging the debate over long-term justification for these trillions in capital expenditure.
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