On Monday, global stock markets experienced a significant downturn, with technology companies being hit particularly hard. The so-called “Magnificent Seven,” a reference to seven tech companies with significant weight in the markets, saw a sharp decline, raising questions about whether the AI’s bubble is deflating.
Billion-dollar losses. Big Tech stocks recently experienced significant drops in value, although they’ve recovered some ground in the past few hours. Apple, Alphabet (Google), Tesla, and Amazon lost 4%; Nvidia lost 6%; and Microsoft and Meta lost 3%. Altogether, the Magnificient Seven lost more than $1 trillion on the stock market. However, the exact figures vary among analysts. For example, Fortune reported losses of less than $600 billion.
A significant setback for Nvidia. Last June, Jensen Huang’s company became the most valuable company worldwide, reaching a market capitalization of $3.33 trillion. However, as of today, its market capitalization stands at $2.47 trillion, representing a 25% loss in value. The recent decline has been severe and has been exacerbated by news of delays in the release of its B200 chips, impacting its future outlook.
Note to Apple: Warren Buffett doesn’t want you anymore. Apple has also experienced a significant setback. Despite still being the largest company in the market with a market capitalization of $3.181 trillion, Monday’s losses were driven by Berkshire Hathaway CEO Warren Buffett’s decision to halve his company’s stake in Apple. Berkshire Hathaway is the eighth largest company in the world.
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The rest of the Big Tech was also affected. The same concerns that impacted Nvidia and Apple also affected the rest of the Big Tech companies. The high expectations for AI technology haven’t materialized as anticipated, leading to a negative impact on companies such as Amazon, Microsoft, Meta, Google, and Tesla. As a result, there’s been a recent resurgence of discussions about the potential burst of the “AI bubble.”
Recession fears. As CNBC reports, the main reason for the decline was reportedly the fear of an economic recession. Poor macroeconomic data contributed to a 12% drop in Japan’s Nikkei 225 index, marking its worst day since the 1987 “Black Monday” on Wall Street.
AI is currently not profitable (for now). It appears that the large investments major tech companies are making in artificial intelligence are currently not yielding returns. A Goldman Sachs report from last June asked, “Gen AI: Too much spend, too little benefit?” At their investment conferences, companies like Microsoft and Meta have stated that AI is a long-term investment, not a short-term one.
However, some analysts argue that the overvalued perception of AI has been discussed for the past 18 months. The recent market fluctuations may be a correction, but the long-term investment plans in AI by the Big Tech seem unlikely to change. Despite doubts about its success, AI remains the focal point of tech companies’ plans to revolutionize the world. These doubts have led investors to penalize the current state of the AI segment.
This article was written by Javier Pastor and originally published in Spanish on Xataka.
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