Gartner Warns $3.5 Trillion in AI Investment at Risk Amid Profitability Concerns

Gartner is standing by its forecast that $3.5 trillion in AI investment could be at risk because of profitability concerns among leading AI models. Gartner chief forecaster John Lovelock said Monday that returns do not yet support the full scale of investment. Gartner's forecast, issued last week, helped trigger a selloff in AI stocks.

Gartner predicted that 80% of neoclouds, which provide computing power dedicated to AI, could cease functioning as independent companies. Lovelock reiterated that neoclouds would not close en masse but could undergo consolidation through takeovers and mergers. Lovelock said a mismatch in timing could partly drive that consolidation. Gartner researchers found in their Wednesday report that AI revenue will be insufficient to support profitable returns on all planned AI capital expenditures between 2027 and 2030.

Lovelock said computing capacity currently exceeds demand, while providers give away substantial amounts of tokens and processing power through freemium services. Lovelock said nearly every market Gartner tracks in the AI race is likely to consolidate into a duopoly. Anthropic and OpenAI constitute that duopoly for the main commercial frontier models. Lovelock said cash flow is not yet growing in proportion to investment in the computing assets neoclouds are building to serve those companies. Lovelock also described AI as a technology that will enter existing commercial operations, rather than an inherently new market for differentiated, competing products.

Neocloud shares fell sharply last week and helped pull the broader stock market lower. CoreWeave fell 25% last week. Nebius fell 25% last week. IREN fell 16% last week. The S&P 500 declined 2% for the week ending Oct. 16. The Nasdaq Composite fell 4% that week. However, the Dow Jones Industrial Average gained 0.7% that week as investors shifted away from technology stocks.

CoreWeave rose about 2% in midday trading Monday. Nebius gained 3.3% in midday trading Monday. IREN rose 5.6% in midday trading Monday. Analysts for Wolfe said in a Sunday note that Gartner's report likely contributed to market stress. Stephanie Wolfe at Roth wrote that Gartner warned more than $3.5 trillion in AI infrastructure spending could face impairment by 2030, with neocloud providers particularly vulnerable.

Anthropic's revenue growth slowed from 140% in the second quarter to 45% in the third quarter. Anthropic's quarterly revenue of $16.8 billion is small relative to the more than $5 trillion hyperscalers are expected to invest through 2030. Many technology analysts view Anthropic as central to the AI investment trade. The pace of expected hyperscaler investment is increasing. Roth at Wolfe noted that OpenAI's annual revenue expectations missed by $20 billion the week before.

Jefferies global head of equity strategy Chris Wood has warned about capital destruction in AI since at least September. Investor Paul Tudor Jones said last week that macroeconomic conditions would make 2027 challenging for the stock market. Jones said subtracting IPOs, secondary offerings and share unlocks from buybacks, mergers and acquisitions, and other supportive activity produces the most negative flow picture since 2009.