The problem with AI valuations is that infrastructure spending is running far ahead of the revenue available to support it. Goldman Sachs estimates roughly $7.6 trillion in cumulative AI capital spending from 2026 through 2031. OpenAI and Anthropic, meanwhile, were generating combined annualized revenue of more than $105 billion by August 2026, which is impressive growth, but still a small base relative to the buildout.
To avoid cataclysmic infrastructure write-downs on hardware with brief 3-to-5-year lifecycles, the industry must scale its annual recurring revenue past $1 trillion by 2030.
Too Much Capacity, Too Soon
Skeptics think the industry is building hardware capacity faster than customers can use it profitably. Under the bear case, the revenue gap eventually reaches hardware suppliers. If enterprise demand fails to fill new capacity, hyperscalers will slow purchases, demand lower prices and move routine workloads to internal chips. Short hardware lifecycles would make even a temporary glut expensive.
Nvidia Corporation (NASDAQ:NVDA) carries the greatest exposure because its 74.9% quarterly gross margin depends on customers competing for scarce, high-end GPUs. Google’s TPUs, Amazon’s Trainium and Microsoft’s Maia can absorb predictable inference workloads, reducing Nvidia purchases and increasing hyperscalers’ bargaining power.
The market still expects Nvidia Corporation (NASDAQ:NVDA) to retain most of its advantage. The shares traded at 25.64 times forward earnings as of August 17, while 285 elite hedge funds in Insider Monkey’s second-quarter database held long positions. Slower orders combined with weaker pricing would hit both earnings expectations and a crowded trade.
Cheaper AI Creates More Uses
Bulls focus on the other side of the equation: using AI is getting much cheaper. GPT-4-level inference has fallen from roughly $20 per million tokens to about $0.40, a 50-fold decline. Deloitte estimates that inference will account for roughly two-thirds of AI compute in 2026.
Lower costs do not necessarily mean lower demand, however. An AI agent may call a model repeatedly to search, plan and check its work. As those calls get cheaper, developers can use far more of them. Falling unit costs could expand the market, as they did in cloud computing.
Microsoft (NASDAQ:MSFT) shows how that can become durable revenue. Its AI operations exceeded a $37 billion annual run rate in the March quarter, up 123% from a year earlier, while Microsoft 365 Copilot passed 30 million paid seats by June. The company can spread cheaper inference across Office, Azure, GitHub and Dynamics. Its advantage is not simply the model, but its place inside software companies already use. Hedge-fund support remained broad but weakened as rising AI capex, depreciation and weaker free-cash-flow conversion threatened to outrun Copilot and Azure revenue: 275 funds in Insider Monkey’s database held the stock at end of Q2, down from 287 a quarter earlier. Short interest fell 12% in the second half of July to 1.10% of the float, showing that most skeptics trimmed long exposure instead of building bearish positions.
The Most Boring Outcome is the Most Likely
An outright dot-com style crash is unlikely, as is a flawless revenue climb to $1 trillion. The most realistic outcome is probably a staged infrastructure digestion phase.
The adjustment could gradually shift value from hardware scarcity toward software monetization. As inference becomes cheaper and custom silicon absorbs routine workloads, Nvidia could face slower growth and more cyclical margins despite its platform leadership. Microsoft (NASDAQ:MSFT) would likely capture more of the upside by embedding cheap inference into products customers already pay for, converting the infrastructure buildout into recurring revenue after absorbing the near-term depreciation and cash-flow pressure.
While we acknowledge the risk and potential of MSFT and NVDA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MSFT and NVDA and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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