AI stocks and investments are slowing now.

The megacap tech stocks that have driven the market all year are officially sputtering. Since the second week of July, the Magnificent Seven stocks—from Amazon.com to Tesla —have lost altitude like fuel-spent rockets.

And this past week was worse. Alphabet reported slower revenue growth in its YouTube business. Lower electric-vehicle prices and deliveries crimped Tesla earnings. The Mag 7 trajectory turned lower still.

One explanation for the downturn has been an investor rotation from Big Tech to small-caps. The tech-led Nasdaq Composite began sinking in relation to the Russell 2000 index around July 10. Analysts across Wall Street seized on the Russell’s breakout to dust off neglected small-cap names.

But no single factor explains market trends, and those little Russell stocks can’t absorb all the megacap money. The diverging fortunes of the two indexes only retraces a few months of the Nasdaq’s outperformance of the Russell and the S&P 500 this year.

Another explanation for the sentiment shift is that investors now fear spending on artificial intelligence is about to slow.

Big Tech has wowed the world with new generative-AI platforms. For most tech companies, that’s meant huge spending on AI chips. Nvidia has been the primary beneficiary, as the primary vendor of those chips. Everyone has been cheering as Amazon, Apple , Alphabet’s Google, Meta Platforms , and Microsoft spend tens of billions of dollars apiece on AI data centers.

The gen-AI models can write computer code and compose songs. One thing they haven’t yet done is generate a lot of revenue for anyone other than Nvidia and a few other hardware vendors.

It’s entirely fair to ask what returns investors can expect from those billions in capital expenditures. Back in May, I raised that question and found no clear answers.

When I queried the AI models themselves, they forebodingly mentioned workforce reductions as the first outcome.

As a journalist, I’m loath to take credit for ideas. Others have also wondered about the return on investing in AI. In June, David Cahn, a venture capitalist at Sequoia Capital, updated an influential analysis he first put out last year, in which he figures that Nvidia’s customers will need to add $600 billion in AI revenue to get an acceptable payback on their investments. As of now, he thinks they’ll be lucky to collectively get $100 billion in new revenue.

Cahn agrees that AI will transform the economy, as the internet and the railroads once did. And Sequoia has backed AI start-ups. But Cahn adds that many speculators in those previous technologies got torched when initial valuations crashed—to the benefit of everyone subsequently using rail or internet service.