Markets are priced for endless AI spending, and pharma can't catch the fall

What if the most dangerous moment for AI stocks isn't a crash in AI, but the day the spending merely stops growing? Markets don't need AI investment to collapse to get hurt. They only need it to level off, because we suspect today's prices assume it never will.

That is the uncomfortable idea running through a piece in Corriere della Sera, which argues that sooner or later AI investment will slow, and that economic growth, now largely propped up directly and indirectly by the new technologies, will suffer. The piece also touches on a return to traditional sectors. Meanwhile, a headline on AOL says AI stocks have just lost $5 trillion. We have only seen the headline, so treat the number as a signal of nerves, not a verdict.

A slowdown in growth hurts more than a fall in spending

Here is the logic, and it is our interpretation. A valuation is a bet on future growth. If investors pay today for spending that keeps climbing, then spending that merely stays high is a disappointment. Chipmakers, cloud providers and suppliers sell into someone else's budget. When that budget stops expanding, their growth rate drops, even if nobody cancels a single order.

The financing side looks equally exuberant. Per a Telecompaper report citing The Telegraph, a London AI chip start-up, Fractile, is reportedly raising around USD 700 million at a USD 6.5 billion valuation, with the UK's Sovereign AI Fund among the investors. That is one deal, and still a report, so it proves nothing about the whole market. But it suggests public money is chasing this theme too. Valuations like that only work if the music keeps playing.

The rotation into pharma is real, but it isn't a safe harbor

The first refuge is already visible. According to Milano Finanza, the main euro healthcare sector indices gained more than 8.5% over the past month, against 0.7% for developed-market global equities. A Comgest manager describes the sector as offering "defensive growth decorrelated from artificial intelligence."

We would be more cautious than that sentence. In the same article, a Robeco manager calls healthcare one of the most interesting cases of AI monetization, and an ARK Invest executive talks about a "convergence" of genomics and AI. Biotech and genomics have posted gains of more than 20% since the start of 2026, and one ARK ETF is up more than 70%. That may be a good investment. It is not obviously an escape from AI. If sentiment toward the theme sours, part of this rally could sour with it.

The same article offers a reality check. Some companies in the sector are not yet profitable, and their shares can swing sharply on clinical trial results or regulatory news. Lombard Odier's strategist also notes that pharma and biotech repeatedly underperformed the market from 2022 onward, so the recent comeback is young. A one-month outperformance is a signal, not a trend.

Can traditional sectors absorb the money? Probably not all of it

We have no figures on how large the AI-linked part of the market is compared with healthcare or other defensive sectors, so we can't put a number on it. Still, the question deserves to be asked: when a theme has driven so much of recent growth, can smaller sectors take in a large rotation without their own prices jumping and their appeal fading? Our view is that they can absorb some of it, not all. The rotation can cushion a pullback, but it can't replace the engine.

Check how much of your portfolio rides on AI budgets

This is not advice, and we don't know when, or whether, spending will flatten. But the question is practical and cheap to answer. Look through your funds and ETFs and add up how much sits in the big AI names, directly or through index weights. Then check whether your "diversifiers" really behave differently, or just carry AI under another label. Be wary of lists promising neat AI "buys" for the week: they tell you what to chase, not what happens if spending levels off.

Our verdict: the risk isn't AI itself, it's the assumption that its budgets only go up. Defensive sectors deserve a look, but as a partial hedge whose own risks you understand, not as a lifeboat. The investor who knows how much of the portfolio rides on that assumption is better prepared than the one hoping the rotation will sort it out.