Nvidia, recently celebrated as the world’s first $4 trillion company, experienced a significant decline of 3.5%. Similarly, Palantir faced a steep drop of nearly 10%. This sell-off was reportedly triggered by a concerning MIT report that revealed 95% of companies investing in generative AI are not seeing any financial returns. The situation was exacerbated by comments from OpenAI's Sam Altman, who suggested that investors might be caught in an AI bubble.
Last week, Altman drew parallels between the current AI craze and the 1990s dotcom bubble, during which internet company valuations soared dramatically before experiencing a substantial crash. While the MIT study attributed the lack of returns to corporate "learning gaps" and integration issues rather than to the quality of AI models, the market's reaction underscores growing apprehensions regarding the commercial viability of AI technologies.
The Nasdaq recorded its most significant drop since August, and the sell-off quickly spread to international markets. In South Korea, SK Hynix, a crucial supplier for Nvidia, saw its shares decline by 2.9%. Moreover, the chip giant TSMC experienced a slip of 4.2%. Notably, SoftBank, which has historically been optimistic about AI, plummeted more than 7%. In contrast, Chinese tech giants like Alibaba and Tencent only saw minor dips, while SMIC, China's leading chipmaker, even rose by 3%.
According to Dan Ives from Wedbush, “Tech stocks were under pressure yesterday, led by AI poster child stocks Palantir and Nvidia as investors worry the tech rally is due for a pullback/correction with the constant valuation arguments front and center.” Ives emphasized that we are still in the early phases of the AI Revolution, noting that the use cases for AI technologies are just beginning to expand as more companies recognize the value created by tech leaders such as Nvidia and its CEO, Jensen Huang, whom he referred to as the “Godfather of AI.”
Concerns regarding the pace of AI investments outpacing sustainable growth have been echoed by several high-profile figures. Notably, Joe Tsai, co-founder of Alibaba, and Ray Dalio, founder of Bridgewater Associates, have both issued warnings about the rapid expansion of the AI market. Earlier this year, Dalio compared the current Wall Street cycle to the lead-up to the dotcom crash of the late 1990s. He stated, “There’s a major new technology that certainly will change the world and be successful. But some people are confusing that with the investments being successful,” during an interview with the Financial Times.
