The AI trade isn't dead, but the easy money is over. Arvind Sanger, Managing Partner at Geosphere Capital Management, argues that the recent dip in artificial intelligence stocks is a necessary digestion phase, not a terminal event. "I don't think the AI story is over, but some of these issues might cause a little bit of digesting before we can say it's all clear," Sanger said. He points to a structural shift in risk: investors are no longer just looking at revenue growth but are now scrutinizing the balance sheets of heavy spenders.
The concern is specific. Sanger cites Oracle and CoreWeave as flashpoints where the market is asking, "Can they keep the spending going?" This follows a Gartner forecast that 80% of specialised AI cloud providers will fail to survive independently by 2030. For traders, this means the multiple compression seen in high-growth names may persist. "The market is going to treat them as guilty till proven innocent now because the mood has changed," Sanger noted, highlighting a shift from euphoria to forensic accounting.
Geopolitics adds another layer of friction. Sanger identifies three legs of the 'AI stool' under pressure: memory (China competition), power (US midterm political noise against data centre build-outs), and chips (AMD vs. Nvidia). He warns that if US midterm elections amplify political resistance to infrastructure spending, the power leg could buckle. "On power, there's concern about political midterm noise about Democrats and the left being opposed to data-centre build-out," he explained, suggesting a clearer picture only post-election.
For Indian portfolios, the advice is counter-intuitive. While global AI tech wobbles, Sanger sees value in domestic demand and export-oriented manufacturers. He specifically flags specialised IT services, financial companies, and select banks as areas where opportunities are emerging beyond the AI theme. "Putting a broad brush on IT services may no longer apply," he said, noting that while disruption is real, the sector's reaction to AI corrections has been a 7-10% rally recently, decoupling from the broader tech sell-off.
The forward outlook hinges on liquidity and valuation gaps. Sanger believes IPO-related liquidity absorption in India is creating stock-specific opportunities in mid- and small-caps, despite elevated valuations. He continues to prefer export-oriented manufacturers, hospitality, and travel businesses, viewing them as safer havens while the AI infrastructure narrative settles. Investors should expect volatility until the US political landscape clarifies the path for data centre and semiconductor demand.