The AI Bubble Is Starting to Deflate: Big Tech Had Its Worst Day on the Stock Market Since the Rise of ChatGPT

The NASDAQ lost over $1 trillion in a single day. Half of that, about $500 billion, was caused by the stock market decline of the so-called Magnificent Seven—Alphabet/Google, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—as the seven largest technology companies are popularly known.

This generalized fall has spread panic in the stock market, resulting in the worst day since October 2022, which coincided with the launch of the ChatGPT (November 2022) and the beginning of the artificial intelligence boom.

$1.7 billion less in two weeks. When you write so many zeros, you lose track of the magnitude of these numbers. We’re talking about $1.7 trillion lost by the seven largest technology companies in just two weeks, more than the entire GDP of several countries.

In percentage terms, it doesn’t seem like much. Today, the NASDQ is down 3.6%, its most significant drop since 2022. The main culprits are Tesla, down 12.3%—its worst day since 2020—and Alphabet, down 5%.

“Nothing” happened. No particular event has caused this widespread decline. In an interview with the Financial Times, analyst Charlie McElligott notes that “risk sentiment remains fragile,” and recent financial results from Google and Tesla “have fed concerns.”

Although Google’s overall revenue beat analyst estimates, its YouTube advertising revenue fell short of expected targets. The situation is more pronounced for Tesla, which has fallen far short of expectations.

What are the benefits of AI? That’s the question all investors are asking, and they’re tired of not getting an answer. “We’ve got the Magnificent Seven who are totally hell-bent on spending on AI, but they’re not beating earnings expectations,” Charles Schwab investor Kevin Gordon said in an interview with CNBC.

“There are signs that it will take longer for them to see a return on their AI investments,” Bokeh Capital investor Kim Caughey told MarketWatch.

The general feeling is that large companies are investing a considerable amount of money in AI, which hasn’t translated into increased profits. The low expectations are causing a downturn in stocks, which have soared in recent months precisely because of the enormous potential of AI and the expectations surrounding it.

It’s better to reduce the bubble’s size than to pop it. Investors don’t want to see another bubble explode, and many are starting to move their money into smaller stocks. Goldman Sachs has warned that the AI bubble is about to pop and could leave considerable losses in its wake. In contrast, people like Microsoft co-founder Bill Gates argue that AI isn’t a bubble because of its solid value.

The general feeling is that the AI boom has a base, but what’s not so clear is whether it can justify the huge investments that have made companies like Nvidia the most valuable in the world.

What happened was a warning. Today’s massive drop in the stock market is a warning for the investment world and tech companies. AI will continue to move billions, but without clear justification and results, it may not grow much further. Investors are already taking their money elsewhere.

This article was written by Enrique Pérez and originally published in Spanish on Xataka.

Image | Obi

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