• AI spending backlash threatens hyperscaler growth
• Inflation hits corporate margins, weakens US consumers
• Stretched valuations risk pullback, denting sponsor exits

The best way to lose money in this market has been to take it off the table.

While geopolitical and trade headwinds have brought economists out in a cold sweat, US corporate earnings have remained strong and most asset classes have continued their relentless surge top-right.

Yet even as Elon Musk pilots SpaceX towards a stratospheric USD 1.8tn IPO valuation, economic gravity is beginning to pull on both legs of the K-shaped economy.

Corporations that are already facing inflationary pressures related to higher energy costs are now querying their AI spend.

More concerning for AI-advocates is that many are starting to question the value of the investments they have already made in the technology, potentially capping hyperscalers’ revenue growth projections.

Meanwhile, price pressures have also added to consumer nerves, increasing economic anxiety among an American citizenry plagued by social division. And all this comes ahead of rough midterm elections set to be defined once again by lofty political promises and more gutter-level culture war posturing.

In this context, the scope for corporate valuations to take a step back – from AI-focused growth engines through to consumer discretionary players and beyond – deserves a closer look.

The implications for M&A dealmakers and the debt providers backing them are clear. No one wants to transact at the top of the market only to then step over the cliff’s edge.

Undoubtedly, such a notion will still seem fanciful to bulls – and they have evidence to back their case.

Capitalism red in tooth and claw is lifting the lid on the US economy’s productive potential. Massive corporations have emerged blinking into the sun to engage in a moonshot race for AI supremacy.

Just yesterday (28 May), Anthropic unveiled it had closed a USD 65bn funding round at a colossal USD 965bn post-money valuation, surpassing that of arch-rival OpenAI. For its part, the Sam Altman-led pioneer is reportedly set to file for an IPO that could value OpenAI at USD 852bn in the coming days.

Not to be outdone, Google-owner Alphabet continues its relentless march as an AI execution giant, scoring 1Q26 Google Cloud revenues of USD 20bn, up 63% year-over-year (YoY), driven by enterprise AI solutions and infrastructure.

And yet, when working through from individual AI-driven productivity gains to the build and launch of useful consumer features “that line is hard to draw” and the trade-off between AI spend and headcount is consequently “harder to justify”, Uber COO Andrew Macdonald told the Rapid Response podcast last week.

The ridesharing and delivery giant – a USD 144.3bn market cap behemoth, with no aversion to deep-pocketed investments into technology, particularly in the autonomous vehicle space – burned through its entire 2026 AI budget by April, CTO Praveen Neppalli told The Information.

This has ignited a debate about “tokenmaxxing”, where companies pour cash into AI solutions and incentivize staff use of models in a bid to generate growth. Some of this has inevitably led to performative and unproductive compliance, which can become very expensive.

Legendary short seller Michael Burry has called this “not sustainable […] quota-driven, leaderboard-driven, management-mandated overconsumption”.

And that’s a problem when corporates are running the rule on costs as US inflation spikes.

Even as the will they, won’t they dance between the US and Iran over the prospect of a lasting deal to reopen the Strait of Hormuz continues and crude oil prices stubbornly refuse to reflect the running down of western reserves, the shock shows up in US price releases – from headline PCI inflation to yesterday’s personal consumption expenditure (PCE) print.

Inflation is heading towards 4%, erasing any hope of interest rates relief from the Federal Reserve, entrenching the bifurcation between scale-chasing megadeal M&A and a more lackluster mid-market, and storing up margin pressures that will show up in 2Q and 3Q earnings releases.

It’s unnerving to see 30-year Treasury yields jump to 5%, doing their job reflecting inflation expectations, while the risk-on for equities remains so intense.

And that’s before we endure the specter of Republicans and Democrats making tax cut and spending pledges likely to hold the rate curve steep. It doesn’t help that President Donald Trump’s tariffs are juicing inflation to the tune of 0.8 percentage points, according to the Dallas Fed.

So, news that OpenAI missed revenue and user targets should perhaps be unsurprising, as corporate executives look to batten down the hatches and ensure return-on-investment for AI deployment.

If enterprise rollout growth slows across the industry, AI valuations that have soared so high have further to fall.

Might this simply reignite the stock rotation cycle which favored asset-heavy or defensive names amid the SaaSpocalypse earlier this year? Could Main Street ride to the rescue?

Not on the exhausted nag of the American consumer.

Continental Drift is aware of the debate surrounding the utility of the headline consumer confidence statistics, but they remain far from buoyant.

And fresh research from the New York Fed found a “remarkable increase in food insecurity”, particularly among lower income, less educated, and family households. It also uncovered a marked correlation between food insecurity and declining consumer confidence.

If the AI motor stalls because corporates want to limit token spend and work harder on squeezing ROI from the rollout of new technology, this will be happening just as CFOs manage inflation-driven margin squeezes – and while the US consumer fears what’s coming down the turnpike.

Any air coming out of corporate valuation tires will be unwelcome for sponsors running the rule on mid-market exits already delayed by AI jitters earlier in the year. It may even reduce the value of paper currency for major listed companies engaging in the current M&A megadeal rush.

None of this is carved in stone yet. But that noise you can hear is a chisel at work.

Continental Drift is a weekly column offering commentary on the macroeconomic, political, and policy forces shaping the M&A landscape across the US and Europe. The opinions expressed here are those of the writer only.