Asger Risom
Top Wall Street analysts from Goldman Sachs and Apollo have declared the traditional 60/40 portfolio broken, warning that massive AI infrastructure spending has created a dangerous “earnings bubble” in the tech sector.
For decades, the foundational bedrock of modern investing has been the 60/40 portfolio—a safety net consisting of 60 percent stocks and 40 percent bonds. For the past twenty years, this was coupled with the assumption that a handful of dominant technology companies would deliver endless growth. However, a series of warnings from historically optimistic Wall Street institutions reveals that these golden rules are breaking down, exposing what top analysts are now calling an “earnings bubble” driven by artificial intelligence spending.
In a recent Fortune report, Goldman Sachs’ chief global equity strategist Peter Oppenheimer conceded that while stock prices themselves might not be in a classic valuation bubble, the tech sector is caught in a dangerous earnings bubble. Simultaneously, Apollo chief economist Torsten Slok declared the traditional 60/40 portfolio “broken,” citing the slowdown in AI trades and surging government debt.
The capital expenditure crisis
The core of this market shift is capital expenditure, or capex. Since the generative AI boom began, hyperscalers like Microsoft, Alphabet, and Meta have poured unprecedented billions into AI infrastructure. Oppenheimer notes that this explosion in spending has severely eroded these companies’ premium cash flows, forcing them to turn to debt and equity markets for funding.
Investors are no longer turning a blind eye to these massive bills. The market is increasingly demanding proof that these multi-billion-dollar AI investments can generate sustainable profits. When companies fail to convince Wall Street of their capex credibility, the punishment is swift. This was painfully illustrated when IBM suffered a historic 25 percent stock collapse in mid-July after a minor revenue miss, exposing the fragility of tech earnings that rely heavily on AI optimism rather than organic financial strength.
A market rotation changes the game
This realization has triggered a massive shift in market participation not seen since the financial crisis of 2009. The extreme concentration of wealth in the “Magnificent Seven” tech giants is unwinding. According to Goldman Sachs, the equal-weighted S&P 500 has recently outperformed the market-cap-weighted index, signaling a healthy rotation where capital is flowing out of megacap tech and into a broader range of companies.
For the everyday investor, the message from Wall Street is clear: the long era of falling interest rates and guaranteed tech dominance is over. With persistent inflation and a higher cost of capital becoming the new normal, market fundamentals are finally returning to the forefront, forcing investors to look past the AI “sugar high” and scrutinize the actual balance sheets of the companies they own.
