Torsten Slok said Tuesday that AI-related valuations could face a painful repricing if profit margins do not rise outside big-tech firms [1].

This warning highlights a growing concern that the broader economy is not yet capturing the productivity gains promised by artificial intelligence. If only a few giants continue to profit, the valuation assumptions for the rest of the market may prove unsustainable.

Slok, the chief economist at Apollo Global Management Inc., said on Bloomberg Television’s program “Surveillance” on July 7 [1, 2]. He focused on the performance of the S&P 493 [1], which represents the S&P 500 index excluding the seven largest technology companies known as the "Magnificent 7."

According to Slok, the stability of the broader market is now tied to whether companies outside this elite group can translate AI implementation into actual bottom-line growth [1, 2]. He said that stagnant margins in these sectors undermine the financial logic supporting many AI company valuations.

"We need to see profit margins go up outside the Magnificent 7," Slok said [1].

Slok said that the current market concentration creates a precarious balance. If the S&P 493 [1] continues to show stalled margins, the premium investors have paid for AI potential across the wider market could evaporate.

"In other words, what’s going on with the S&P 493 becomes very, very critical," Slok said [1].

“"We need to see profit margins go up outside the Magnificent 7."”

The market has largely priced in a widespread productivity boom driven by AI. However, if the financial benefits remain concentrated within the Magnificent 7, the S&P 493 may fail to justify its current valuation, potentially triggering a correction as investors realize the technology's economic impact is narrower than expected.