The AI Capex Boom Carries an Uncomfortable Historical Echo

GMO’s analysis cuts against the prevailing narrative. Where markets see investment, history often sees excess. 

• The current rally is heavily tied to a surge in AI-related capital expenditure by hyperscalers, which now represent a large share of market capitalization.
• Historically, periods of high corporate investment have preceded lower equity returns and often coincided with recessions.
• The scatter plot on page 2 shows a clear negative relationship between aggregate investment levels and subsequent market returns.
• One explanation is behavioral: overconfidence drives overinvestment, which later compresses returns.

There is a counterargument—that AI spending is not cyclical but existential. Firms must invest or risk irrelevance. That may be true. But the market rarely distinguishes between necessity and excess in real time. It prices both as optimism.