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Amid fears of a US recession, there seems to be growing impatience among investors when it comes to the massive investment Big Tech has made into their AI products.
It has been a tough time for Big Tech in the stock market, as some of the biggest companies in the world have shed hundreds of billions in value after their latest earnings failed to meet the growing demands of investors.
The shares of the ‘Magnificent Seven’ – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla – all fell over the past week, spurred on by recent earnings reports. These companies became known as the Magnificent Seven due to their collective influence on the US stock market.
The value of some of these companies has soared in recent years, thanks to the major focus on AI technology, which has been a hot topic in the tech industry. But recent shifts in the stock market meant these companies were on track to lose roughly $800bn in value, Reuters reports.
The reason for the plunge is tied to fears of a potential recession in the US. For example, recent jobs data for the country was worse than expected. These concerns have caused a knock-on effect, with stock markets facing turmoil in Europe, Japan and Ireland.
But another concern among investors is the heavy financing many of these companies have put in AI technology, with the payoff coming too slowly for some Wall Street investors. This is despite the major boost this focus has had – Microsoft and Nvidia in particular saw their valuations grow massively over the past couple of years thanks to the recent AI boom.
But in their recent earnings reports, companies such as Amazon, Microsoft and Alphabet sparked worries among investors that the massive funding put into data centres and AI are not paying off. Alphabet had a strong quarter, but its investments into AI models has roughly doubled compared to last year.
Meanwhile, there were reports that Nvidia could face months of delays for its new AI processors due to design flaws and production issues, according to The Information. This delay could also impact its major customers such as Meta, Google and Microsoft.
In a recent letter from activist investor group Elliot Management referenced by the Financial Times, the group described AI as overrated and claimed Nvidia is “in bubble land”.
One looming concern in the AI sector is the future of OpenAI, one of the key sparks of the generative AI hype since the launch of its product ChatGPT. Microsoft has been a major investor into OpenAI. But recent reports suggest OpenAI is burning through billions of dollars to stay afloat.
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