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The surging growth in demand for AI products and the hype surrounding them has driven technology stocks to new highs in the last year, but now experts suggest the AI bubble is bursting.
This comes after Monday (August 5) saw a substantial one-day crash on the stock exchange, with AI-related businesses heavily impacted.
The ‘Magnificient Seven’ which includes Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla saw a combined loss of more than $650 billion in market cap.
Japan’s benchmark index shrunk 12% in its worst loss since 1987, Nasdaq ended down 3.4%, and The Down closed down 2.6%.
This is what a big tech bubble burst looks like:
Silicon valley over-hyped AI and failed to deliver.NVIDIA down $325 billion
APPLE down $300 billion
GOOGLE down $200 billion
AMAZON down $135 billion
MICROSOFT down $125 billion
META down $80 billion
TESLA down $60 billion pic.twitter.com/372ApMKAXq— Ewan Morrison (@MrEwanMorrison) August 5, 2024
This comes just weeks after 24 July saw another decline, marking the end to a period of substantial growth in technology and AI space.
A natural correction or bubble burst? Experts wade in
While some people state this was just a ‘correction’ and nothing to worry about, some experts believe the AI hype bubble is popping.
“Over the last year or so, the continued stellar performance from the Magnificent Seven has justified” high valuations, wrote equity William Blair equity researcher Richard de Chazal in an analysis on Friday, according to Fortune.
“Now, however, when activity is only slightly disappointing, those large tech companies are being taken to the woodshed.”
The generative AI industry has had over $1 trillion invested into it. In a report from Goldman Sachs looking at if this huge monetary confidence will pay off, portfolio manager Brook Dane said: “You get these waves of both investment digestion and hype-reality.
“And the two of them play out across a multi-year horizon.”
They also described the situation as being “a little bit of a leap of faith” and said AI businesses need to show more in the future.
“We really need to see, at some point over the next year to year-and-a-half, applications that use this technology in a way that’s more profound than coding and customer service chatbots.
“If this ends up just doing coding and customer service, we’re massively overspending on this…”
Featured Image: Via Scott Beale on Flickr
