Crypto markets showed renewed signs of life this week as institutional investors fueled the longest streak of inflows into US spot Bitcoin exchange-traded funds (ETFs) since April and crypto-linked stocks rallied on optimism over US regulation. But the more intriguing story may be unfolding outside crypto: AI’s grip on speculative capital is beginning to loosen.

After dominating markets for nearly two years, the AI trade is becoming more selective as investors distinguish between companies with sustainable earnings and those riding the hype cycle. The Philadelphia Semiconductor Index, or SOX, recently slipped into a technical bear market after falling 20% from its recent high, although it remains well above year-ago levels.

Some…