Analysts highlight rising inference costs, model depreciation, and free alternatives as key risks to AI sector margins and valuations.
Investors are shifting away from AI-related equities amid growing doubts over profitability, according to new analysis. High inference costs, rapid model depreciation, and competition from free open-source alternatives are pressuring margins for leading AI developers, which remain unprofitable despite strong revenue growth.
The report contrasts current market skepticism with earlier optimism, noting that frontier AI models now face an unusually short useful life, often becoming obsolete within months. Free, capable models are also suppressing willingness to pay, further challenging paid-access business models.
The rotation reflects broader sectoral shifts, with capital flowing into cyclical, defensive, and value-oriented stocks as AI growth expectations cool.