AI Investment Cycle Fuels Extreme Market Fear and Volatility

Investors are navigating extreme anxiety as the Fear & Greed Index drops to 24.8, signalling “extreme fear” in equity markets. Analysts link this mood to the massive capital outlays powering the artificial‑intelligence (AI) investment cycle. Ives Bonzon, CIO of Julius Baer, warns that “the AI cycle is an innovation‑intensive cycle in terms of capital investment and operates fundamentally differently from a cycle that does not require such heavy spending.” He cautions that the cycle could “collapse under its own weight” if cost pressures overwhelm companies.

The surge in AI spending is benefiting large tech providers, but the high‑cost, high‑competition environment raises doubts about generating sustainable free cash flow. Javier Molina of eToro describes a possible “regime change,” noting that robust U.S. growth limits rate cuts while AI spending erodes tech firms’ ability to fund buybacks, slowing index gains. He adds, “From now on, picking companies with solid earnings and real capacity to monetize their investments will be more important than simply following market trends.”

Geopolitical tension and a restrictive monetary stance add to market instability. Laura Torres, director at IMB Capital Quants, says the mix “suggests that the next sessions will remain volatile until seasonal weakness eases.” Traders will watch for signs of stabilization in the Oman (Ormuz) region and inflation expectations as they shape short‑term market direction.