Insight & Outlook: Fidelity Market Signals Weekly

AI's next test: Delivering results

Has the AI story changed?

Yes, but not in the way many investors think.

The last few years, the market rewarded companies just for participating in the artificial intelligence (AI) technology trend.

Today, investors are becoming more selective. The question is no longer, "Who is spending the most on AI?" It's becoming, "Who will generate the best return on that spending?"

Recent earnings reactions highlight this shift. Some technology companies that reported strong revenue and earnings growth still faced investor scrutiny as AI-related capital expenditures continued to surge and free cash flow came under pressure. Meanwhile, the market seemingly rewarded other companies with measurable productivity gains and earnings leverage from AI investments.

Does this mean the AI boom is over?

Far from it. AI-related capital spending remains robust, showing that many companies continue to see significant long-term potential in the technology. The investment debate is increasingly centered not on whether AI will create value, but on (1) how quickly that value becomes visible in margins, earnings, and cash flows, and (2) which companies can ultimately capture the largest share of the benefits.

Exhibit 1: AI’s financial impact among business functions

Firms reporting cost savings …

Source: Nestor Maslej, Loredana Fattorini, Raymond Perrault, Yolanda Gil, Vanessa Parli, Njenga Kariuki, Emily Capstick, Anka Reuel, Erik Brynjolfsson, John Etchemendy, Katrina Ligett, Terah Lyons, James Manyika, Juan Carlos Niebles, Yoav Shoham, Russell Wald, Toby Walsh, Armin Hamrah, Lapo Santarlasci, Julia Betts Lotufo, Alexandra Rome, Andrew Shi, Sukrut Oak. “The AI Index 2025 Annual Report,” AI Index Steering Committee, Institute for Human-Centered AI, Stanford University, Stanford, CA, April 2025. https://doi.org/10.48550/arXiv.2504.07139

In that regard, the fundamental case for AI may be getting stronger, especially as business adoption continues to rise. As Exhibit 1 notes, Stanford's 2025 AI Index Report reports savings from AI in specific business functions. Among companies surveyed, most reported savings of less than 10%. To us, the benefits have indeed been modest, but real thus far—with room for improvement.

Where are investors finding opportunities beyond the obvious AI winners?

From a tactical standpoint, the investment opportunities may be viewed through bottlenecks to AI’s future growth. As of August 2026, shortages and longer development lead times are visible in several AI-related niches such as semiconductors, memory chips, cloud infrastructure, and skilled labor, such as electrical engineers, data center construction workers, and AI engineers.

One of the most interesting developments is that AI's next challenge may not be computing power, but electricity (Exhibit 2). There are growing concerns that data center demand is outpacing power-generation capacity. As AI models become larger and more widely adopted, demand for infrastructure, cooling systems, and energy transportation continues to increase. This is creating potential opportunities for utilities, industrial companies, and infrastructure providers.

Whereas the first inning of AI investing rewarded broad exposure to a narrow group of market leaders, the next innings may require greater investor selectivity. As AI adoption spreads across the economy, active managers have an opportunity to identify the companies turning AI investment into sustainable earnings growth while avoiding firms that may struggle to justify elevated expectations. Greater performance dispersion could make active management an increasingly valuable tool for navigating the evolving landscape.

What should investors watch next?

The market appears increasingly willing to reward companies that can turn AI investments into higher margins, stronger cash flows, and/or accelerating earnings growth. Companies that simply continue spending without demonstrating a path to profitability may face greater scrutiny.

It looks like AI is starting to grow up. As it does, investors are moving beyond the initial excitement phase and beginning to ask tougher questions about return on investment. While this transition may create some volatility, it’s a sign that AI is beginning to become embedded in the real economy.