Gravy Train Derailment
Following disappointing quarterly earnings results by Microsoft and Google owner Alphabet, Reuters reports that AI-related companies lost a whopping $190 billion in stock market value.
Microsoft may have eked out a win, with the promise of AI services convincing investors, but even its stock dropped by 0.7 percent in extended trade, per the report.
It's hard what to make of the news. The dropoff could indicate the start of investors becoming wary of tech companies overpromising on AI, especially without a clear path to monetization.
At the same time, Microsoft and Alphabet stocks have hit record highs following a year of AI hype. Microsoft beat Apple by becoming a $3 trillion company earlier this month, a massive vote of confidence for its doubling down on the tech.
But given this week's seemingly counterintuitive news, the seams may be starting to show.
According to Deutsche Bank strategist Jim Reid, the downturn may be "signaling some overextension of the recent strong rally," according to a note seen by Yahoo Finance.
Other analysts were far more bullish.
"This knee-jerk reaction [to tech results] is noise, the AI revolution has started," Wedbush analyst Dan Ives told Yahoo Finance.
It's still too early to tell if the recent drop in stock value is related to investors becoming weak on AI. Are they spooked by the daunting costs of expanding infrastructure to keep up with a surging appetite? Data centers designed to crunch data for tools like ChatGPT, which Microsoft has integrated into its software, aren't just incredibly expensive to build — they're also extremely pricey to run.
In short, has Wall Street really hit peak AI? Are we looking at a bubble that's about to burst? At the end of the day, it's all going to hinge on whether AI companies can figure out a way to make money.
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