According to the president of Blackstone Inc., there’s no bubble in artificial intelligence. Treasury Secretary Scott Bessent isn’t seeing a “systemic problem” in the boom. But as hard as Wall Street brass works to tamp down concerns around the space, markets are refusing to be calmed.

The Nasdaq 100 capped its worst two-week drop since April of last year, while measures of credit risk and turbulence both jumped. As an AI-linked equities basket tanked 4.9%, investors piled into Treasuries, driving the 10-year yield below 5% for the first time in a month and reviving a haven trade that went missing over the summer.

Taken together, the moves show rising skepticism toward bets that previously represented an almost bulletproof Wall Street consensus: long big tech, and short defensive markets stressed by anxiety that AI-focused spending will revive inflation. Although past bouts of volatility proved survivable, this week’s Treasury rally is evidence to Neuberger Berman’s Jeffrey Blazek that a more significant shift may be underway.

“It came with a vengeance — we’re seeing a flight to quality bid of Treasuries inverted to the AI trade,” said Blazek, who is the $630 billion firm’s co-chief investment officer of multi-asset. “It’s completely a plot twist.”Neuberger’s asset-allocation committee started to cut risk on equities about a month ago on concerns about the AI trade getting overheated and rising rates.

Stocks fell this week, with the S&P 500 losing 0.5%. The tech-heavy Nasdaq 100 index shed 0.8% and is now off 7.3% from a record hit earlier this month. Meanwhile, the largest ETF tracking long-dated bonds rose for the third straight week, with the fund on pace for its best month since February of last year. And the shift showed up in ETF flows, where the gap between equity and fixed-income demand has fallen into the bottom decile as investors increasingly favor bond exposure, according to Baird Strategas.

Much of investors’ unease is focused on the sums companies are borrowing and spending on AI — and whether the technology can deliver returns fast enough to justify them. A Wall Street Journal report this week said that Anthropic — one of the leading AI developers — may spend $750 billion on additional computing power in the coming years.

Mark Zuckerberg’s Meta Platforms Inc. said it will spend about $825 billion in future computing power and AI-infrastructure leases and contracts. Shares dropped more than 9% this week, the most since May, and a measure of the company’s credit risk hit a record high following that announcement. The cost of protecting debt from other hyperscalers and chipmakers also jumped.

At the same time, corporate bond yield premiums have risen globally, while a key gauge of perceived risk in the US corporate bond market, the CDX Investment-Grade Index, climbed as much as 1.5 basis points to 64.4 on Friday, its highest intraday level since March. The index rises as investor concerns over credit risk intensify.

A basket of AI stocks has gone in the same direction as 10-year Treasury yields for nine straight weeks, the longest stretch of tandem moves since the launch of OpenAI’s ChatGPT, as investors shifted focus on the technology’s impact on the economy. That contrasts with the pattern in July, when the AI trade lost momentum along with Treasuries.

“As prior equity leadership has buckled and shifted more defensive, and as credit indexes have flashed signs of stress, investors now have a reason to seek out the relative safety of bonds,” said Cameron Dawson, CIO at NewEdge Wealth.

Yet even as bond markets flash caution, some prominent voices are pushing back on fears that the AI trade poses a broader threat. Bessent told investors at a closed-door conference that he did not see a systemic problem with the AI boom, according to the Financial Times. Blackstone’s Jon Gray struck a similar message, arguing that investors shouldn’t worry that the AI trade was heading into bubble territory.

JPMorgan Chase & Co. strategists including Nikolaos Panigirtzoglou attribute the violent selloff in AI stocks to so-called VaR shocks, a term that refers to instances where selling is imposed by asset managers’ risk models. The way they see it, investors who took large positions during the recent months of relative market calm are now being forced to unwind their bets as volatility erupts. The team estimates that chipmakers consume around a fifth of the total risk capital in global equity markets.

“VaR shocks do not necessarily need to have a fundamental trigger, but rather often reflect positioning adjustments,” Panigirtzoglou and his colleagues wrote in a note. “Given the recent declines in semiconductor stocks, we suspect that the previous overhang of elevated long semiconductor exposures has been largely unwound.”Nevertheless, the shift to a defensive posture is showing up in the US ETF market, where demand for fixed-income funds is gaining ground. Investors have poured roughly $58 billion into bond ETFs so far this month, accounting for about 38% of all ETF flows, according to data compiled by Bloomberg Intelligence.

It’s the second consecutive month that fixed income has captured more than 35% of overall flows, the first such back-to-back stretch since early last year.

“Bond flows have been punching above their weight over the past two months,” said BI’s Athanasios Psarofagis. “Some of that likely reflects a more defensive tilt, but yields are also attractive enough that investors may simply be looking to lock in some income while they still can.”