For the past two years, AI investors have been obsessed with one question: Can Nvidia (NVDA), Microsoft (MSFT), and Palantir (PLTR) keep delivering blockbuster earnings? According to SEI Investments Company's Chief Investment Officer Nathan Shetty, that might be the wrong question entirely.

In an exclusive interview, Shetty warned that even the market's biggest AI winners could come under pressure if the Federal Reserve keeps interest rates higher than investors expect. "Great companies aren't likely to get a pass," he said, arguing that the biggest threat to high-multiple AI stocks isn't deteriorating fundamentals—it's the possibility that higher-for-longer rates force investors to rethink what they're willing to pay for future growth.

The Risk Isn't AI—It's Valuation

Asked whether a more hawkish Fed could hurt AI leaders despite their strong earnings momentum, Shetty said investors shouldn't assume great businesses are immune from macroeconomic forces. "AI leaders, in general, sit at the intersection of strong earnings momentum and rate sensitivity," he explained. "They have impressive fundamentals, but they're discounting a lengthy extrapolation of that growth at low rates."

In plain English: today's valuations assume years of rapid expansion. If interest rates stay elevated, those future earnings become less valuable in today's dollars, putting pressure on valuation multiples even if earnings remain strong. For context, Nvidia stock currently trades at 31x earnings, Microsoft at around 23x, and Palantir at over 148x.

Why Markets Could Be Caught Off Guard

Shetty believes investors remain too confident that the Federal Reserve is nearing the end of its tightening cycle. "Markets are still anchored on a token hike and a lengthy pause," he said. If inflation proves more persistent or demand-driven than expected, that assumption could change quickly. "Historically, when rates move unexpectedly, the discount rate tends to dominate the narrative," Shetty noted.

That's because while earnings determine how much a company makes, interest rates influence what investors are willing to pay for those future earnings. If the market begins pricing in a more restrictive Fed, valuation multiples—not company fundamentals—could become the biggest driver of AI stocks.

Investment Takeaway

For investors, the biggest AI risk over the next year may not come from disappointing earnings, slower model adoption, or increased competition. It may come from the Federal Reserve. Shetty's argument isn't that Nvidia, Microsoft, or Palantir have weaker businesses than the market believes. It's that exceptional companies can still experience multiple compression if interest rates remain higher for longer. As AI investors continue focusing on quarterly results, they may also need to pay closer attention to the macro backdrop that ultimately shapes how those results are valued.