Apollo's Torsten Slok Warns AI Valuations Could Face A 'Painful Repricing,' Says Token Optimization Signals A Bumpier Road Ahead

Slok argued that the current market pricing of AI stocks assumes a productivity boom that has yet to materialize.

• Slok said there are still no signs that profit margins are expanding beyond the technology sector, even though that outcome underpins the valuations of many AI companies.
• He said the growing focus on token optimization, model routing and token marketplaces is an early warning that AI adoption could prove slower and more complex than markets currently expect.
• The economist noted that the value of AI companies ultimately hinges on whether the technology can lift profit margins across the broader economy, not just within the tech sector.

Apollo Global Management’s Chief Economist, Torsten Slok, on Tuesday warned that AI valuations could face a “painful repricing” if companies outside the technology sector take much longer than investors expect to realize meaningful returns on their AI investments.

Slok argued that the current market pricing of AI stocks assumes a productivity boom that has yet to materialize.

No Signs Of Profit Margins Rising Outside Tech Sector, Says Slok

Slok said there are still no signs that profit margins are expanding beyond the technology sector, even though that outcome underpins the valuations of many AI companies.

He said the growing focus on token optimization, model routing and token marketplaces is an early warning that AI adoption could prove slower and more complex than markets currently expect, even as demand for computing power continues to rise.

“This creates a dangerous divergence between aggressive, front-loaded valuations today and a much slower cash flow reality, since equity markets priced for instant earnings growth will face a painful repricing if the productivity hockey-stick takes five years rather than five months,” Slok added.

Slok Explains Why AI Valuations Depend On S&P 493

The economist noted that the value of AI companies ultimately hinges on whether the technology can lift profit margins across the broader economy, not just within the tech sector.

While software companies can integrate AI into their products relatively quickly, industries such as health care, banking, manufacturing, energy and transportation face far longer implementation timelines because of regulatory hurdles, data governance requirements and the need for extensive process changes, he added.

“The bottom line is that a mismatch between current earnings expectations and the actual time firms need to generate ROI on AI investments could have significant implications for many AI company valuations today,” Slok said.

Siegel Downplays Concerns Over Rotation Out Of Tech Stocks

Jeremy Siegel, professor emeritus of finance at the University of Pennsylvania's Wharton School, on Tuesday downplayed concerns that the rotation out of the Magnificent Seven stocks is a warning sign for investors.

Siegel said that investors are moving away from megacap tech stocks and piling into cyclical, value-oriented sectors amid a shifting investment thesis toward lower inflation, lower interest rates, and more attractive valuations.

“The long-term AI story remains compelling, but leadership within the equity market is rotating. That is typically a sign of a healthier bull market rather than a weaker one,” he added.

At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, rose 0.36%; the Invesco QQQ Trust ETF (QQQ) surged 1.07%; and the SPDR Dow Jones Industrial Average ETF Trust (DIA) edged lower by 0.05%. Retail sentiment on Stocktwits regarding the S&P 500 ETF was in ‘bearish’ territory.

The Global X Artificial Intelligence & Technology ETF (AIQ) is up 49% over the past 12 months, while the iShares U.S. Technology ETF (IYW) is up 44%.

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