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Investors’ long-running enthusiasm for artificial intelligence showed signs of faltering late Tuesday and early Wednesday morning as tech stocks tumbled. The tech-heavy Nasdaq declined more than 1.2% this morning.
Nvidia, fresh off becoming the world’s first $4 trillion company, sank 3.5%, while Palantir slid nearly 10%. The selloff appeared to be sparked in part by an MIT report that claimed 95% of companies investing in generative AI are seeing no returns, and was potentially deepened by earlier comments from OpenAI’s Sam Altman suggesting investors may be caught in an AI bubble. Late last week, Altman drew a parallel between today’s AI frenzy and the 1990s dotcom bubble, when internet company valuations spiked dramatically before crashing.
And while the MIT study attributed failures to corporate “learning gaps” and flawed integration rather than actual AI model quality, the market reaction highlights growing concerns about AI’s commercial viability.
The Nasdaq logged its steepest drop since August, and the rout quickly spread overseas. Korea’s SK Hynix, one of Nvidia’s key suppliers, lost 2.9%, while chip giant TSMC slipped 4.2%. SoftBank, long bullish on AI, cratered more than 7%. However, Alibaba and Tencent barely dipped, and China’s chipmaking champion SMIC even popped 3%.
“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,” Wedbush’s Dan Ives wrote in a note on Tuesday. “We are still in the early days of the AI revolution as the use cases are just starting to massively expand as more companies recognize the value creation being driven by a handful of tech companies led by the Godfather of AI, Jensen [Huang], and Nvidia.”
Concerns that investment in AI is racing ahead of sustainable growth are not new. High-profile figures, including Alibaba cofounder Joe Tsai and Bridgewater Associates founder Ray Dalio, have cautioned against the pace of the boom.
Dalio has also likened today’s Wall Street cycle to the run-up to the dotcom crash of the late 1990s. “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,” he told the Financial Times earlier this year.
Others see the risks as even greater. Apollo Global Management chief economist Torsten Slok argued last month that the AI surge could eclipse the internet bubble of the 1990s, pointing out that the 10 largest companies in the S&P 500 are now more overvalued relative to fundamentals than they were at the height of the dotcom era.
Written by Beatrice Nolan for Fortune as “U.S. tech stocks slide after Altman warns of ‘bubble’ in AI and MIT study doubts the hype” and republished with permission.
