The stock market turmoil unleashed by the artificial-intelligence industry reflects two fears that are increasingly at odds.
The dueling anxieties have been brewing for months. But they’ve shifted to the center of the stock market over the past two weeks. The result has been a series of punishing selloffs that have hammered dozens of companies across a number of industries — from real estate services and wealth management, to insurance brokers and logistics firms — and wiped more than $1 trillion from the market values of the big tech companies investing the most in AI.
The shift marks a major break from the sentiment of the last few years, when speculation that AI would set off a transformative productivity boom kept pushing stock prices higher. While big tech stocks kept rising — sending Meta surging nearly 450% from the end of 2022 until the start of this year, and Alphabet up more than 250% — the hand-wringing over whether it was a bubble about to burst did little to derail the rally.
That began to change late last month as earnings reports from some of the biggest tech companies started to spook investors, who are growing impatient that the spending has yet to produce a commensurate windfall in revenues.
“This is a real no-win situation,” said Anthony Saglimbene, chief market strategist at Amerprise Advisor Services. “Investors were comfortable saying, ‘so long as it happens in the future, I’m comfortable with Microsoft or Amazon or Alphabet spending the money.’ Now they want to know more immediately when the payback will come — and we don’t have a clear picture.”
At the same time, investors are growing increasingly worried about the businesses that will potentially be swept aside — or at least significantly upended — by the new applications that are being steadily rolled out.
“Just because the exuberance of the past few years has been taken down, people are now acting irrationally, thinking AI has become a headwind to the economy,” said Bobby Ocampo, the co-founder and managing partner of Blueprint Equity.
However, he added, the underlying concerns are legitimate. “There are a lot of AI-first companies trading very aggressively, but it is still very much a landgrab. People are starting to realize they’re not meant to be super efficient or profitable in the near term.”
But the pile of money the tech giants are throwing at AI is getting so big that there’s increasing skepticism about whether it can continue.
“This level of capex will consume almost 100% of hyperscalers’ cash flow from operations compared with a 10-year average of 40%,” Ulrike Hoffmann-Burchardi, chief investment officer Americas at UBS Wealth Management, wrote in a note to clients. “That spending is now increasingly being funded by external debt or equity financing.”
At the same time, some are dubious of the fears that have rocked the market over the past few weeks. After all, given the relatively slow commercial adoption of AI, the way it will reshape business more broadly remains a subject of debate.
“It might take a lot for the market to snap out of the doom loop and realize fundamentals are strong, the companies building AI will benefit, and that more companies can benefit by growing revenue and so forth with AI,” said Ameriprise’s Saglimbene.
“When the market finally feels these companies aren’t going out of business, it will realize AI is a tool that can lead to greater profitability, and that the companies that deploy it will gain. But we’re going to be in a period of volatility for the foreseeable future.”
