Apollo Global Management’s chief economist has a message for anyone banking on AI to deliver quick returns: patience might not be a virtue the market can afford.
Torsten Sløk warned on June 30 that the gap between massive AI capital expenditures and actual productivity gains outside the tech sector could trigger a painful repricing across equity markets. Apollo has assigned a roughly 30% probability that the US economy enters a recession in 2026.
The mismatch problem
Wall Street is pricing in strong free cash flow recoveries for hyperscalers starting in 2028.
Sløk’s argument centers on a timing disconnect. The tech sector is generating genuine AI productivity improvements, but the rest of the economy, the industries that actually need to adopt and benefit from these tools, is moving much slower.
Apollo’s view is that Wall Street’s projections are simply too optimistic. Analysts are modeling rapid earnings growth that assumes implementation timelines far shorter than what non-tech sectors have historically demonstrated for any major technology adoption.
Sløk had flagged this dynamic as early as January 2026, when he identified AI as simultaneously the largest upside and downside risk for markets. Six months later, the downside scenario appears to be getting more attention.
A subsequent note from Apollo in early July doubled down on the thesis. Without accelerated profits from tech giants, the firm argued, cash flows face cascading risks that extend well beyond Silicon Valley. Consumer sentiment, data center investment, and the broader growth outlook are all tethered to the AI narrative delivering on its promises.
Why this matters for markets
The Magnificent 7, the mega-cap tech stocks that have driven an outsized share of market gains, are particularly exposed. Their valuations already bake in aggressive earnings growth assumptions tied directly to AI monetization.
If those projected free cash flow surges don’t materialize by 2028, Sløk warns it could squeeze profit margins for AI leaders and cascade into broader market sell-offs.