AI: Back to Square One

Everything is moving faster with AI, and not just when it comes to developing new frontier models! While the technology sector was riding high last summer, the picture has deteriorated significantly towards year-end. Concerns over the sector’s ability not only to finance its expansion but also to build the necessary infrastructure have sent shockwaves through the entire equity ecosystem. Given this sharp shift in sentiment, it seems worth taking a closer look at the main sources of concern.

Chang Xin Memory Technologies, aka CXMT, is the new bogeyman in the memory chip industry. Founded in 2016, the company is China’s leading DRAM* manufacturer and makes no secret of its ambitions to challenge the current market leaders (Samsung, SK Hynix and Micron). This new heavyweight on the Chinese stock market, which manufactures components for PCs and smartphones, is naturally setting its sights on the data centre market. This industrial threat is likely to play out over the long term. Without getting bogged down in overly technical arguments, the company’s ability to overcome the technological barriers associated with the most sophisticated products remains to be proven (HBM**). Investors, however, seem unwilling to dwell on such considerations and are instead opting for caution, reducing their exposure to a sector that has historically been highly cyclical.

Investor concerns are not limited to the Middle Kingdom. CoreWeave, a US company whose business model falls into the neocloud category, is also making headlines. The company, which leases computing capacity to AI businesses, is currently paying the price for what is considered excessive debt, just as delivery schedules are getting longer. With $35bn in debt, plus a further $16.5bn in lease commitments, financial leverage of around 6x (net debt/EBITDA) and a speculative credit rating, investors are beginning to question the company’s ability to meet its debt obligations. As is often the case in such circumstances, CDS spreads*** are soaring, while the share price is moving in the opposite direction, losing half its value in a single month.

But CoreWeave should not be allowed to obscure the bigger picture, as rising financing costs are affecting the entire sector. The impact varies depending on companies’ balance-sheet positions, but the whole ecosystem is feeling the pressure. By way of example, the average spread for hyperscalers has risen from 60bp in Q4 2025 to 130bp today. This may be one reason why Meta recently announced plans to raise up to $95bn through successive equity offerings.

Investors are discovering, sometimes the hard way, that the much-discussed GPUs****, for which Nvidia is the leading designer, are not the only bottleneck in the value chain. Local opposition, access to land, water and electricity are all obstacles that operators, including neocloud providers, must overcome if they are to meet the construction deadlines presented to customers and investors. Rather than questioning the strength of demand, the market’s concerns are therefore increasingly centred on the supply side. So much so that Bernstein analysts believe only 35% of announced projects in North America (170 GW) will actually be completed.

None of these challenges seems to be discouraging model developers, who are engaged in fierce competition at the technological frontier. The two leading AI labs, OpenAI and Anthropic, will have to contend with the latest innovations from Meta (Muse Wonder) and Google (Gemini 4 Argon). While the leadership position varies depending on the KPI considered, one question is worth asking: what are the economic implications of this renewed competitive intensity? One potential outcome is lower prices. If this materialises, pricing pressure will not necessarily be bad news, as it could further expand AI’s addressable market. In that scenario, aggregate demand for computing capacity will once again be revised upwards, providing yet another illustration of the Jevons paradox.

It is against this decidedly uncertain backdrop that Anthropic has made its move: the creator of Claude filed the much-anticipated Form S-1 on Monday, 26 October, a prerequisite for any IPO. This document provides a clearer picture of the company founded by Dario and Daniela Amodei. It will take the form of a public benefit corporation and issue no fewer than five different classes of shares, including Class F shares, which will give the seven founders 50.1% of the voting rights.

On the financial front, there are few surprises compared with recent leaks: the company is benefiting from exponential revenue growth ($16.3bn in H1 2026, up 14x year on year) while gradually narrowing its operating losses ($693m in H1). However, investors are likely to spend the most time examining off-balance-sheet commitments, which total $800bn over the next ten years. The latest indications point to a valuation range of $1.5tn to $1.75tn, with a potential market debut in the second half of November.

In the meantime, fast-money investors have wasted no time unwinding their positions. Goldman Sachs’ “AI Winners vs. AI at Risk” basket is now down more than 20% this year, following a gain of almost 100% in mid-June. Having taken stock of the midterm election results, investors appear to have finally abandoned their unbridled optimism and adopted a decidedly more realistic view of AI’s development and the constraints it faces. The sector is therefore likely to enter a phase of greater differentiation, and the current earnings season should help investors position themselves more effectively ahead of year-end…

* Dynamic Random Access Memory

** High Bandwidth Memory

*** Credit Default Swap

**** Graphics Processing Unit

Pierre Pincemaille, General Secretary of Investment at DNCA. This article was finalised in November 6th, 2026.

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