The tech-heavy Nasdaq stock index has experienced significant fluctuations recently, reflecting growing concerns about the sustainability of the artificial intelligence (AI) spending boom. Notably, stocks of leading AI-related companies, including Nvidia and Alphabet, faced declines for a second consecutive day. However, the most pronounced drop was seen in Micron Technology, which saw its shares tumble more than 13%. This widespread selling trend contributed to a decline of over 2% in the Nasdaq index.
Micron’s stock exemplifies the current climate in the stock market — having skyrocketed nearly 800% in the last year due to surging demand for memory chips linked to AI developments. This meteoric rise underscores the inflated valuations often associated with AI stocks. Gil Luria, head of technology research at investment firm D.A. Davidson, stated that the market is oscillating between optimism about AI’s potential to enhance productivity and skepticism regarding its actual returns on investment. He pointedly posed the question: “Are we going to start to see returns?”
Investments in AI have reached staggering levels, with a report from Stanford University’s AI Index revealing over $580 billion in corporate AI investments last year, on top of more than $1 trillion spent in the four years prior. This wave of spending has stirred apprehension in the stock market. Recently, Alphabet’s stock fell 5%, while SpaceX saw a remarkable drop of 16%.
The anxiety surrounding these developments has not been confined to the U.S.; it has reverberated through Asian markets as well. Korean stocks took a heavy hit, with both Samsung and its rival SK Hynix experiencing declines of 12%. The backdrop of this market tension coincides with discussions at two of the largest AI companies, OpenAI and Anthropic, which are contemplating public offerings that could become some of the largest IPOs in history. While both firms are now generating revenue, the long-term profitability of generative AI remains uncertain.
Mark Vena, CEO of SmartTech Research, indicated that the market is grappling with the question of when returns on AI investments will materialize. The tech sector faced a significant downturn on Tuesday, particularly affecting chipmakers, with Intel and Advanced Micro Devices each dropping around 6%. Micron, however, bore the brunt of the sell-off, largely due to investor anxiety ahead of its upcoming earnings report, which analysts are watching closely to gauge whether the investment cycle in AI continues to maintain momentum.
