This year has introduced considerable volatility in the artificial intelligence (AI) technology sector, driven by a confluence of market forces that continue to shape its trajectory. Despite these fluctuations, the long-term potential of AI remains robust and opens up dynamic investment opportunities in the sector.
After impressive returns in 2023 and 2024, technology stocks, especially those of top AI infrastructure companies, have experienced some losses and high levels of volatility in 2025.
In this era of unprecedented technological innovation and heightened macroeconomic and policy uncertainty, volatility is expected. However, we believe this backdrop also creates an incredibly fertile hunting ground for investors seeking to take advantage of market dislocations.
In our analysis, fundamentals remain solid for now. This year, when AI-exposed technology companies have underperformed or outperformed it has been driven by valuation rather than any changes to fundamental estimates.
Consensus earnings for the broader AI basket of technology stocks have remained relatively stable, demonstrating resilience so far in 2025. However, the market is forward looking and investors have begun to consider potential uncertainties for 2026 and beyond.
Investors still cautious
Despite AI remaining stable currently, some investors are hitting the pause button when it comes to AI investing. Several factors, both idiosyncratic and macroeconomic, have contributed to investors’ growing caution about the sustainability of AI-investment levels.
AI-industry-specific factors have led to caution in this sector. Examples include Chinese company DeepSeek’s efficient model innovation, slower-than-anticipated enterprise AI adoption, increased scrutiny of the economics behind large-language models and growing signals that major players are reassessing optimal levels of capital investment.
A shifting political policy landscape further complicates these evolving industry-specific dynamics. This has created significant disruption and uncertainty both for the AI-infrastructure market and the broader economy.
We have seen increased restrictions on chip shipments to China – driven by national security concerns – as well as fluctuating tariff levels across a variety of end markets, including AI-exposed infrastructure.
This does not help businesses gain the confidence needed to make the long-term investments required to build and deploy AI. So, while the development and deployment of AI may be secular in nature, it is not immune to fluctuations in the broader economy.
Compelling investment opportunities for AI
There remains undeniable potential in AI, which is poised to transform and reshape both personal and professional realms. It is likely that AI use cases and monetisation methods will proliferate in the coming months and years.
According to the World Economic Forum, within the next five years, most organisations are expected to reimagine every part of their value chains using AI technologies.
It is encouraging to see the incredible growth at a number of companies in this space, proving that AI technology can disrupt even the largest and most established companies and industries.
While it makes sense to proceed with caution, we are enthusiastic about the long-term opportunities and expect many AI beneficiaries (and losers) to emerge across multiple sectors, both within technology and beyond.
Key areas of focus when researching AI stocks
The daily, and even hourly, shifts in trade policy can dominate headlines. In our view, they exert a larger near-term impact on markets than the underlying long-term AI investment trends.
Given this, when researching AI stocks, it is key to focus on the companies’ strategic rationale and subsequent expected outcomes of the administration’s policy agenda. Equally important is rigorous ongoing analysis of AI adoption and deployment across both consumer and enterprise channels.
AI research should also evaluate the return on investment on scaled application rollouts, track investment commitments from major hyperscalers – the companies that provide cloud computing and data management services to organisations – and monitor emerging preferences in compute-infrastructure design.
Integrating these insights will filter out transitory distractions and identify the companies that are best positioned to lead over the next market cycle.
In a market that has developed at such a staggering pace, with the search still on for the right economic model, fundamental research is critical.
Recent market turmoil is creating attractive dislocations for investors in AI who are able to stay focused on the process and ignore the elevated noise levels.
Kate Lakin is director of research and portfolio manager of US research strategies at Putnam Investments. The views expressed above should not be taken as investment advice.