As AI stocks continue to dominate global equity markets, several leading strategists are warning that the sector may be entering what they call an “air pocket” — a temporary slowdown rather than a structural reversal. While valuations remain elevated, analysts argue that the current phase reflects a normalization in expectations rather than the formation of a bubble. For institutional investors in Israel and worldwide, this shift signals the need to reexamine assumptions about AI monetization, earnings visibility, and the trajectory of technology-led market gains.

Wall Street strategists see cooling momentum, not collapsing fundamentals

Several investment banks report that enthusiasm surrounding AI infrastructure, chips, and cloud services has begun to moderate. The sector’s meteoric rise in 2023–2025 was driven by explosive growth in GPU demand and aggressive capital spending by hyperscalers. But with deployment timetables stretching and corporate budgets tightening, analysts say the market is entering a more balanced phase.

Strategists describe this slowdown as an “air pocket” — a moment when revenue acceleration pauses yet underlying fundamentals remain intact. This perspective contrasts with bubble warnings that surfaced earlier in the year. Despite slowing indicators, earnings reports from leading AI firms show resilient margins, strong backlog pipelines, and sustained spending on next-generation compute infrastructure. The takeaway: growth is still coming, but perhaps not at the breakneck pace markets had priced in.

Valuation pressures emerge as earnings timelines lengthen

Part of the reset stems from valuations that remain historically high. The multiples for key AI beneficiaries — from semiconductor manufacturers to cloud platforms — expanded rapidly amid optimism about generative AI adoption. Now, analysts are pressing companies for clearer guidance on when these investments will convert into recurring revenue and measurable productivity gains.

For example, while demand for AI accelerators remains robust, some hyperscale customers are slowing orders to evaluate utilization rates and refine deployment strategies. Enterprise adoption, particularly outside the technology sector, has proven slower and more cost-sensitive than early projections suggested. This disconnect is prompting equity research desks to adjust models, emphasizing sustainable revenue ramps rather than hypergrowth narratives.

Investment implications for tech-heavy portfolios

For portfolio managers, the current reassessment may drive greater differentiation across AI-related equities. Companies with clear monetization pathways, strong hardware supply chains, and proven customer adoption cycles may outperform those relying solely on long-term hype. Meanwhile, firms exposed to cloud infrastructure and high-performance compute remain well positioned as multi-year AI investments continue across the private and public sectors.

Israeli institutional investors — many of whom hold substantial positions in global semiconductors, cybersecurity, and cloud software — are closely monitoring the shift. The “air pocket” narrative is viewed not as a warning signal but as a reminder that the AI cycle will unfold in stages, with earnings progression serving as the ultimate driver of valuations.

Looking ahead, investors will focus on upcoming earnings from major AI chipmakers, cloud providers, and enterprise software firms. Key indicators include capex commitments, GPU supply-demand balance, AI revenue disclosure practices, and early productivity data from enterprise implementations. If fundamentals remain strong, Wall Street expects the next phase of AI growth to be steadier, more measurable, and potentially more durable than the initial surge — marking a reset rather than a reversal in the global AI narrative.