Experts Say That the AI Bubble is Bursting

13/8/2024,

“Those big tech companies are getting dragged to the woodshed when activity is only marginally disappointing.”

Is the hoopla around AI busting? Yes, according to some specialists.

This week has been difficult for the stock market due to a widespread selloff that was sparked by concerns about a Wall Street recession and a severe decline brought on by persistently rising interest rates. The AI business was one of the most severely affected sectors of the economy, with key AI firms like as Microsoft, Google, Nvidia, Meta, and other Big Tech behemoths seeing a sharp decline in their stock values.

The Wall Street Journal reports that as of Monday, the group of digital behemoths known as the “Magnificent Seven” which also includes Apple, Tesla, and Amazon had lost $650 billion in total.

Considering how much capital businesses and investors have invested into the technology, the AI industry’s response to the market turmoil is noteworthy. According to Vox, artificial intelligence is currently a trillion-dollar sector. Given the amount of money being invested in this field, one might assume that its economic output would be more resilient to a downturn in the market.

However, it is evident that this was untrue, and specialists are raising concerns once more.

In an analysis published on Friday, equity William Blair equity researcher Richard de Chazal stated, “Over the last year or so, the continued stellar performance from the Magnificent Seven has justified” high valuations, as reported by Fortune.

“Now, however, when activity is only slightly disappointing, those large tech companies are being taken to the woodshed.”

Stated differently, how much is a trillion-dollar industry worth if it implodes when a little turbulence arises during a gold rush?

This week’s decline appears to have reflected some of the excitement surrounding artificial intelligence, according to even Goldman Sachs experts.

The Goldman Sachs portfolio manager Brook Dane stated in a study released on Monday that “you get these waves of both investment-digestion and hype-reality.” “And the two of them play out across a multi-year horizon.”

This is not to argue that artificial intelligence (AI) will vanish overnight, especially not generative AI products like Google’s AI Overview or OpenAI’s ChatGPT. However, AI startups are now losing a tonne of money and have not yet developed a readily marketed product that is free of humiliating mistakes. Not a business concept that inspires confidence!

Advocates claim that artificial intelligence (AI) is the way of the future, and in general, they may be right. But this week’s collapse seems to indicate that the hype-driven AI sector is still more of a house of cards than anything substantial in its infancy.

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