Jefferies Warns AI Investment Cycle May Have Peaked
Jefferies warns that rising costs and return concerns may trigger a mid-cycle correction in AI investment, prompting the firm to shift asset allocations toward India.
Financial services firm Jefferies Group warned in a recent report that the global artificial intelligence investment cycle may have peaked or entered a mid-cycle correction. The firm identified rising financing costs and growing concerns over the returns on massive capital expenditures as the primary pressures likely to weigh on technology investments in 2027.
While major hyperscalers—Microsoft, Amazon, Alphabet, and Meta—increased combined capital expenditure by 108% to $202 billion in the third quarter of 2026, Jefferies suggests future spending may fall short of the $1.04 trillion market consensus. The report noted that AI investment contributed 67% of US real GDP growth in the year ending Q3 2026.
Jefferies warned that a credit-driven slowdown in AI spending could negatively impact United States economic growth and potentially shift Federal Reserve policy toward easing. In response to these projections, the firm raised India's weight in its Asia-Pacific ex-Japan relative-return portfolio to 14% from 12%, while reducing allocations to South Korea and Taiwan by one percentage point each.
