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When AI starts to feel like the metaverse, the stock market's favorite trade could be in trouble. BCA Research said it was looking for one warning sign in particular when it comes to the AI boom, which has sent tech stocks into stratospheric territory as companies pour billions into AI-related investments. According to Peter Berezin, the chief global strategist at the research firm, it could be time for investors to get out when AI sees a "metaverse moment" — a scenario in which a large AI firm announces "even more capex" and sees its stock price drop, he wrote in a note to clients on Tuesday. "If that were to happen, it would be time to run for the hills," Berezin said. "Until then, we are content to maintain only a slightly below-benchmark allocation to stocks on a 12-month horizon," he added. The metaverse embodied the market zeitgeist and drew billions in investment several years ago. The concept eventually faded out of popularity, causing firms like Meta to eventually report billions in losses. Some observers have drawn parallels to the AI craze, which has seen large tech firms pouring buckets into chips and data centers while monetization plans remain unclear. Amazon, Meta, Microsoft, and Google — four companies at the center of the AI trade — could spend as much as $320 billion on capex primarily related to AI infrastructure this year, according to an analysis of financial statements by Business Insider. Tech stocks have already flashed several warning signs recently, Berezin said. Related stories Business Insider tells the innovative stories you want to know Business Insider tells the innovative stories you want to know For one, the free cash flow of the so-called hyperscalers — large tech companies spending big on AI — has fallen in recent months, a possible sign that balance sheets at those companies are weaker. That was similar to what happened to telecom stocks prior to the bursting of the dot-com bubble, Berezin said. Second, speculative stocks that have been buoyed by the AI trade have sold off in recent weeks. That's another worrying sign for the AI trade, Berezin added, pointing to the recent decline in quantum computing, rare earth, and nuclear energy stocks.
