Chief executives at two of Wall Street’s largest banks signaled rising concern about the sustainability of the recent equity rally, warning that markets could experience a meaningful pullback. Their caution comes amid a surge in AI-related investment that has reshaped corporate dealmaking and concentrated gains in a handful of technology firms, raising questions about valuation risk and broader economic effects.

In September, Citigroup updated its projection for AI-related infrastructure spending by major technology companies to $2.8 trillion through 2029, up from an earlier estimate of $2.3 trillion. That upward revision reflects heavier-than-expected commitments to data centers, chips and cloud services, and illustrates how firms are chasing capacity to support generative AI and related workloads. The scale of corporate commitments was underscored on Monday when OpenAI agreed to a seven-year, $38 billion contract with Amazon Web Services for cloud services, a deal that ties long-term capital spending to a narrow band of providers.

Market practitioners say the concentration of investment and the resulting market leadership of a few mega-cap technology names leave indices vulnerable if sentiment shifts. A narrow advance driven by expectations of outsized future profits can translate into abrupt reallocations of capital when growth forecasts disappoint or macroeconomic conditions change. From a portfolio standpoint, that raises the risk of larger downside moves for widely held equity benchmarks and retirement funds that are heavily weighted to the same beneficiaries of the AI spending spree.

The potential pullback has implications beyond portfolio marks. Large-scale, sustained AI investment could lift productivity and corporate earnings over the medium term, but the near-term effects include upward pressure on demand for specialized labor and energy in tech hubs, potential supply-chain bottlenecks for chips and data center equipment, and increased concentration in cloud and semiconductor markets. Those dynamics could feed through to inflation measures in uneven ways, complicating central bank assessments as they weigh the timing of rate cuts or hikes.

Policymakers and regulators face a delicate balance. On one hand, supporting technological adoption can yield long-range productivity gains; on the other, the combination of concentrated market power and rapid capital flows heightens systemic risks that may warrant closer antitrust and financial stability scrutiny. Macroprudential tools and clear competition policy could be necessary to prevent overheating in specific sectors while preserving the broader benefits of technological diffusion.

For investors, the immediate message from Wall Street leadership is caution. Heavy corporate capital commitments do not eliminate the risk of a correction when markets reassess profit timelines or when macro variables—such as interest-rate trajectories or geopolitical tensions—shift. Over the longer horizon, substantial AI spending promises structural change in production and services, but the transition is likely to be bumpy, marked by episodic volatility and a redistribution of returns across industries and geographies.