A major tech selloff is shaking up Wall Street as the enormous gulf between AI company valuations and their lagging revenues continues to grow.
As the Wall Street Journal reports, the stock market has been showing marked signs of “fragility,” with Nvidia slipping seven percent last week. Despite signs of an end to the ongoing federal shutdown buoying up some excitement, the AI chipmaker continued its plunge this week, sliding another three percent on Tuesday.
Meta shares have also fallen almost 17 percent since its quarterly earnings report late last month, despite the company beating investors’ expectations. AI software giant Palantir has suffered a similar fate, dropping eight percent since posting better-than-expected numbers early last week.
In short, there’s clearly a dark cloud gathering over the AI industry, where lofty claims of immense capabilities always seem to remain in the future, and investors are increasingly balking at astronomical spending on AI infrastructure.
There are growing concerns that the untold billions of dollars being spent on data center buildouts may never lead to the promised returns. Tech leaders are now openly discussing an AI bubble that could plunge the United States deep into a recession if it were to pop, economists have warned.
Adding to the uncertainty is Japanese company SoftBank, which announced this week that it had sold off its Nvidia stake for $5.8 billion — money it promptly used to bankroll different AI bets, including heavy investments in OpenAI.
SoftBank’s shares slid as much as ten percent on Tuesday, following concerns that SoftBank had to sell in order to meet exploding funding needs.
In an apparent attempt to calm spooked investors, SoftBank Vision Fund CFO Navneet Govil promised that the AI hype wouldn’t lead to a disaster.
“What’s different between the dotcom boom and today is that AI companies are generating meaningful revenues,” he told reporters, as quoted by Reuters. “There’s a lot of talk about [capital expenditures] spend, but it’s actually driven by demand.”
Looming in the shadows is Michael Burry, who famously shorted the US housing market before its collapse in 2008. Last week, Burry bet over $1 billion that the share prices of AI chipmaker Nvidia and software company Palantir will fall, stoking further fears.
... continue reading