Indias AI stocks are facing scrutiny as global concerns about a tech bubble grow. Companies linked to data centers and high-performance computing have seen major gains. Experts question if earnings can justify current valuations. Investors are now focusin
The enthusiasm has been fuelled by expectations that India will become a major data centre hub. According to a KPMG report, India's data centre industry could generate nearly $45.7 billion in revenue by 2033 as AI adoption, cloud computing and data localisation requirements drive capacity additions.
Yet analysts increasingly see a gap emerging between the long-term opportunity and near-term valuations.
Vinod Nair, Head of Research at Geojit Investments, said the key concern is no longer whether AI spending will continue, but whether companies investing billions of dollars in AI infrastructure can generate adequate returns on those investments.
"Investors are questioning the lack of measurable return on investment from enterprise AI deployments and the limited impact on broader economic growth thus far, even as AI companies continue to spend aggressively on compute infrastructure," Nair said.
According to him, any recalibration of global AI capital expenditure could trigger corrections across infrastructure beneficiaries, including companies linked to data centres, networking equipment and computing hardware.
The concerns are not limited to India. Global investors are increasingly debating whether AI-related spending is creating another technology bubble similar to previous market cycles.
Gurmeet Singh Chawla, MD of Master Portfolio Services, said many Indian AI-linked stocks have become proxies for global AI sentiment rather than being valued solely on their own earnings potential.
"The real threat is whether the trade has gone far ahead of fundamentals," Chawla said. He noted that many AI supply-chain companies have been re-rated based on multi-year order books and future growth expectations. However, any project delays, earnings disappointments or slowdown in spending by global hyperscalers could lead to disproportionately large corrections.
"What most investors overlook is the second-order risk," he said, adding that high valuations leave little room for execution mistakes.
The concern is particularly relevant at a time when corporate earnings growth globally has slowed, tariffs continue to create uncertainty in international trade and geopolitical tensions in West Asia have pushed up energy prices.
Paresh Bhagat, Chairman of Mangal Keshav Financial Services, believes investors should separate the AI opportunity from AI valuations.
"The AI opportunity remains very real and is likely to play out over several years. However, some stocks linked to AI, data centres and digital infrastructure have seen significant rerating over a short period," he said.
Bhagat prefers companies that are direct beneficiaries of AI-related capital expenditure rather than businesses riding on the broader narrative. He pointed to transmission infrastructure, power equipment, electrical systems and select high-performance computing companies as areas likely to benefit from sustained investment.
Analysts broadly agree that AI remains one of the most important long-term investment themes. The debate is increasingly centred on price rather than potential.
For investors, the structural growth story remains intact, but after a massive rally, stock selection and valuation discipline may matter far more than simply owning anything associated with AI.