An economist from Apollo Global Management has issued a warning that the failure of companies outside the major technology sphere to demonstrate improved profitability from artificial intelligence investments poses a risk to the valuations of large-cap tech stocks.

Torsten Slok, Chief Economist at Apollo, stated on Tuesday that a rise in profit margins for companies beyond the so-called "Magnificent Seven" group of US tech giants is necessary. He emphasized that the performance of the other 493 constituents in the S&P 500 index has become critically important.

Slok indicated that Wall Street needs to witness positive outcomes in earnings and profit margins from the adoption of AI by these broader index constituents. Without such evidence, skepticism regarding valuations, including those of the large technology firms, could intensify.

He raised concerns about the timeline for margin expansion, questioning whether the implied earnings assumptions for the Magnificent Seven are too high or expected too soon relative to what will materialize. This timing, he concluded, is absolutely crucial for determining the appropriate valuation of these leading tech companies today.