After enjoying a great run for more than three years, the artificial intelligence (AI) boom has been facing several roadblocks. Be it because of the falling public image, the attacks of rogue AI agents or the declining revenue growth, plenty of reasons have been emerging on the markets that can weaken the momentum of the AI boom.

AI's Public Image Is Losing Ground

AI is facing a growing perception problem.According to CNBC’s Jim Cramer, the industry is struggling to convince the public that its rapid expansion will deliver broad economic benefits (read: AI's Public Image Is Losing Ground: 4 Defensive ETFs in Focus).

Cramer believes growing concerns over AI-related job losses, rising electricity demand and environmental costs are increasingly overshadowing the technology’s productivity potential.

IMF Warns AI Risks Could Outweigh Benefits Without Safeguards

Artificial intelligence could do more harm than good to the global economy if governments and companies fail to establish proper safeguards, International Monetary Fund (IMF) Managing Director Kristalina Georgieva warned at the fund’s annual meetings in Bangkok.

Speaking alongside Anthropic co-founder Jack Clark, Georgieva said AI is already benefiting the economy. However, those gains could be offset by economic shocks if the technology fails to deliver the productivity improvements promised by its supporters.

She stressed that AI needs effective safeguards and a shared ethical foundation to ensure its benefits outweigh the risks.

Attacks of Rogue AI Agents

India's cybersecurity agency reported that AI models breached live systems at organizations in the country and accessed confidential records during testing, Reuters said.

The Indian Computer Emergency Response Team (CERT-In) said AI providers voluntarily disclosed incidents in which their agents exceeded their assigned permissions and accessed business data. It did not name the companies or affected organizations.

The disclosures add to similar incidents reported by OpenAI and Anthropic involving AI models accessing external systems without authorization. OpenAI has also apologized after an AI agent accessed an Australian government website without permission.

Anthropic IPO Valuation Expectations Ease as Sales Growth Cools

Some Anthropic investors and prospective IPO buyers are considering a lower valuation of about $1.5 trillion, down from the previously expected $2 trillion for its planned November share sale, according to Reuters.

On its investor day, Anthropic reported that third-quarter revenues rose 45% sequentially to $16.8 billion and that it was profitable on an adjusted basis. However, some investors were disappointed by the slower growth, as revenues more than doubled to $11.6 billion in the second quarter.

Rising Rate Worries

Several market watchers and specialists have grown cautious about further gains in U.S. equities as Treasury yields rise. BlackRock (BLK), the world's largest asset manager, has turned defensive on U.S. equities as rising Treasury yields and uncertainty surrounding the AI boom threaten to fuel market volatility, as quoted on Yahoo Finance.

Billionaire investor Ray Dalio also believes the stock market could face greater pressure as bond yields climb and companies struggle to translate earnings growth into stronger cash flows, as quoted on CNBC. Although corporate profits are still supporting equities, the Bridgewater Associates founder warned that this cushion may not last much longer.

How to Play the Scenario With ETFs

Cybersecurity ETFs

AI safety concerns and rising cyber threats are creating new tailwinds for the cybersecurity sector.AI has sharply reduced the time needed to carry out cyberattacks. Stronger safeguards, independent testing and international cooperation will be crucial to managing the risks. No wonder, ETFs like Amplify Cybersecurity ETF (HACK Quick QuoteHACK - Free Report) are a good pick in this case.

Broader Index Funds

The S&P 500 tracks 500 of the largest U.S. companies, covering about 80% of the American equity market. Investing in the index offers broad exposure to long-term U.S. economic growth.  Buffett advises investors to take a long-term approach, warning that selling after just two or three years could mean missing gains or locking in losses.

Buffett specifically recommended holding index funds to boost retirement savings. “Consistently buy an S&P 500 low-cost index fund,” he told CNBC’s On The Money. State Street SPDR Portfolio S&P 500 ETF (SPYM Quick QuoteSPYM - Free Report) , which charges 2 bps in fees, can thus be played to ride out the AI-led volatility.

Dividend-Growth ETFs

Dividend-growth ETFs can serve as a good bet in case of a major drawdown when the AI trade comes under pressure. Over long periods, dividends have accounted for the majority of the market's total return. In addition, dividend growth ETFs invest in high-quality companies with strong balance sheets and stable cash flows, allowing them to increase their dividends consistently (read: 3 High-Quality Dividend Growth ETFs Beating the S&P 500).

ProShares S&P 500 Dividend Aristocrats ETF (NOBL Quick QuoteNOBL - Free Report) targets companies that are currently members of the S&P 500, have increased dividend payments each year for at least 25 years and meet certain market capitalization & liquidity requirements.