Apollo Global Management’s chief economist Torsten Slok told Bloomberg Television’s Surveillance on Tuesday that profit-margin improvement needs to extend beyond the largest technology companies for broader market valuations to remain defensible. Slok emphasized the performance of companies outside the so-called Magnificent 7, saying that "what’s going on with the S&P 493 becomes very, very critical."
Stocks tied to artificial intelligence optimism have rallied in recent months. Shares of global semiconductor manufacturers and major cloud providers - often called hyperscalers - have set record highs as investors priced in substantial demand linked to AI. But Slok warned that this optimism must ultimately be reflected in profitability across a wider swath of the market, not just concentrated in a handful of firms.
Market volatility offered a reminder of that risk on Tuesday. Samsung Electronics Co. saw its shares fall more than 9% in Seoul after results that nonetheless beat estimates failed to satisfy investors. The decline rippled through markets: S&P 500 and Nasdaq 100 futures moved lower, and peers including Micron Technology Inc. and Sandisk Corp. also posted declines.
Slok argued that Wall Street needs to observe positive earnings and margin outcomes from broader AI adoption among the S&P 493 companies. Without those signs, he said, doubts about current valuations - including those attached to the largest technology companies - are likely to grow.
The warning comes as market participants weigh whether capital expenditures on AI, measured in the hundreds of billions of dollars by some estimates, will ultimately deliver the returns required to lift margins across many firms. Investors have recently reassessed groups of stocks amid concerns about heightened competition, potential overcapacity, and whether large-scale spending will generate the anticipated profitability.
Key points
- Torsten Slok says profit-margin gains must appear outside the Magnificent 7 to support valuations.
- Semiconductor makers and hyperscalers have rallied on AI optimism but recent drops show market sensitivity.
- Samsung’s more than 9% single-day drop pressured U.S. futures and affected peers such as Micron and Sandisk.
Risks and uncertainties
- If S&P 493 companies do not show improved margins from AI investments, valuation doubts could intensify - affecting broad equity markets and technology sectors.
- Elevated competition and possible overcapacity in semiconductors and cloud infrastructure could undermine expected returns from heavy capital outlays.
- Company-specific earnings reactions, exemplified by Samsung’s share decline despite beating estimates, can transmit volatility across global and U.S. markets.
The situation Slok described underscores what he framed as a pivotal test for market breadth: whether AI-related spending will translate into earnings and margin improvement beyond the handful of largest tech firms. Market participants will be watching upcoming earnings and margin data closely for confirmation that the benefits of AI are more widely shared.