The artificial intelligence boom appears unstoppable, but a growing number of investors and other observers fear it could be a bubble that is about to burst.
After skyrocketing more than 50% from April lows, the tech-heavy Nasdaq index has fallen nearly 5% this month. Investors are concerned that it may take longer than expected to realize big returns from the trillions of dollars invested in the next wave of technology.
Those who have been around long enough say some of the enthusiasm is reminiscent of the dot-com boom and bust at the turn of the century. Optimists say this time is different.
AI chip maker Nvidia led a stock market rally to become the world's most valuable company amid AI enthusiasm. The Santa Clara company makes specialized computer chips that tech companies use to train artificial intelligence models, data centers, robotics and more.
AI bulls and bears were waiting to see what Nvidia would say about the health of the business in its quarterly earnings report on Wednesday. The company helped keep hope alive by announcing that its earnings, as well as its future outlook, were better than analysts had expected. The company's shares jumped more than 4% in early after-hours trading.
“There's been a lot of talk about the AI bubble. From our perspective, we see something completely different,” Nvidia CEO Jensen Huang said on the earnings call. “As a reminder, Nvidia is like no other accelerator. We excel at every step of AI development.”
From social media to self-driving cars, Huang highlighted how artificial intelligence, which can generate content and perform tasks without human intervention, will impact every industry.
Nvidia's results could help revive the AI rally. However, investors and analysts remain concerned about whether high stock prices are justified for all the different companies involved in the race for artificial intelligence. After the dot-com bubble, many companies disappeared, but those that survived are now among the largest and most profitable companies in the world.
Sky-high valuations for the Silicon Valley tech giant and other major players in the AI race have investors wondering if and when their bets on the future of technology will pay off. The fates of tech companies have become more intertwined as they invest hundreds of billions of dollars in each other, as well as in data centers, artificial intelligence research and lucrative employee benefit packages.
In September, Nvidia said it plans to invest up to $100 billion in ChatGPT maker OpenAI to fund massive construction of data centers that house the equipment used to store and process the vast amounts of information needed to run artificial intelligence systems. OpenAI has also committed to purchasing at least 10 gigawatts of Nvidia chips for artificial intelligence data centers.
The total capital expenditure needed to serve OpenAI's computing needs could reach $130 billion by 2027, according to a New Street Research analyst note published in October. That means OpenAI alone could spend $52 billion on Nvidia's technology.
Despite its sky-high valuation of roughly $500 billion, OpenAI is losing billions of dollars as it continues to spend money on infrastructure, computing power and other expenses.
“Whether we're burning $500 million a year, $5 billion or $50 billion a year, I don't care. I really don't care,” OpenAI CEO Sam Altman said at the Stanford conference. talk last year. “It will be expensive. It will be worth it.”
But as the losses pile up, anxiety among investors is growing.
Roughly 45% of global fund managers surveyed by Bank of America said there is an “AI bubble” that could negatively impact the economy and markets.
The debate about whether an AI bubble exists will continue.
Samuel Hammond, chief economist at the Foundation for American Innovation, said he doesn't think AI investment is in a bubble. But there could be winners and losers.
“Companies that get huge credit just for incorporating AI into their mission but fail to deliver on it may still fall to zero,” he said. “But most of the stock market's gains are coming from large-cap tech stocks like Nvidia and Google.”
Tech companies are largely funding these massive data center projects with equity rather than debt, making it less likely that the bubble is about to burst, Hammond said.
Strategists at investment bank Goldman Sachs said in an October paper that while there is a risk of overinvestment in technology companies, they have delivered earnings growth and have strong balance sheets.
“While the success of dominant technology companies is clear, this does not necessarily mean that there is a market bubble that is in imminent danger of bursting,” the newspaper said.
Gary Smith, an economics professor at Pomona College and author, has warned of an artificial intelligence bubble. He pointed to OpenAI's losses, circular funding among tech companies and the limitations of AI.
“OpenAI is clearly in a very fragile situation,” he wrote in his post. review article with Jeffrey Funk, author and retired professor, on MarketWatch. “When the AI bubble bursts, it will be one of the first victims.”
Some analysts have compared data center construction to the telecom boom of the 1990s, when companies invested in 500 billion dollars laying fiber optic cables to support the rapid spread of the Internet, creating a surplus of dark fiber that sat idle for years as physical capacity exceeded actual traffic.
This was announced by Google CEO Sundar Pichai. BBC There are times when the tech industry misses the mark.
“We can look back at the Internet right now. Clearly there was a lot of overinvestment there,” he said. “But none of us doubts that the Internet is deep.”
