Consensus earnings growth for AI-related stocks in the MSCI AC World Index is forecast to plunge from nearly 100 per cent in 2026 to 30 per cent in 2027 and approximately 22 per cent in 2028, according to a new report by investment bank Jefferies, released as chipmakers suffered sharp losses this week amid a global equity selloff.

The findings arrive at a moment when investor confidence in the AI trade is visibly fraying, with mounting debt concerns and valuation scepticism driving a broad rotation out of AI-linked names across global markets.

Jefferies Calls for Diversification Beyond AI

'It has become time to diversify beyond AI,' the Jefferies report stated, as global equity markets experienced a sharp selloff driven by growing doubt over the sustainability of the AI investment cycle. The bank, however, continues to hold positions in companies that supply the infrastructure behind AI, while steering clear of firms directly participating in the ongoing AI capital expenditure race — a distinction that reflects a more selective, rather than wholesale, retreat from the theme.

Valuation Gap Raises Red Flags

Valuation remains a central concern flagged in the report. On an equal-weighted basis, global AI stocks currently trade at around 23 times forward price-to-earnings — nearly double the 13 times multiple commanded by non-AI stocks. This premium is particularly striking given that earnings growth for AI-linked companies is expected to decelerate sharply over the next two years. Critics argue that paying a near-double valuation multiple for companies whose growth trajectory is compressing is a structural risk that markets have yet to fully price in.

Emerging Markets Feel the Rotation

The shift away from AI is already playing out in emerging markets. According to the report, AI-linked stocks in this segment gained 81 per cent in the year through June 2026, but returns have slowed markedly in the second half of the year as investors rotated into other sectors. The report also noted that Jefferies recently shifted its underweight position in South Korea to neutral, following the market's relative underperformance.

Semiconductor heavyweights TSMC, Samsung Electronics, and SK Hynix collectively account for 28.5 per cent of the MSCI Emerging Markets benchmark — a concentration so large that fund managers can 'hardly avoid them,' the report noted. While further gains in chip stocks remain possible if AI-related spending holds up, Jefferies cautioned that 'much of the easy money in semiconductor stocks has already been made.'

Impact on Indian Equity Flows

A separate report published earlier this month noted that AI-led earnings concentration in Taiwan and South Korea drew some emerging market funds away from what it described as fairly valued Indian stocks, triggering a rotation that weighed on foreign investor flows into India. This adds a domestic dimension to what is otherwise a global re-rating story — suggesting that the AI trade's unwinding could have indirect but real consequences for Indian equity markets.

What Comes Next

Whether the deceleration in AI earnings growth triggers a broader de-rating or merely a pause will depend on the trajectory of AI capital expenditure by hyperscalers in the coming quarters. For now, the balance of evidence — slowing earnings growth, stretched valuations, and visible rotation in emerging markets — suggests the AI trade is entering a more discriminating phase, where infrastructure enablers may hold up better than direct AI spenders.