Is the Tech Stock Collapse Related a Sign of the AI Bubble Popping?

Is the AI bubble starting to burst?

Tech Nein

Tech stocks crashed Monday morning, continuing last week's global selloff and raising concerns over slowing economic growth.

Shares of tech giant Apple fell over four percent following news that Warren Buffett's Berkshire Hathaway had sold almost half of its stock in the iPhone maker.

And AI chipmaker Nvidia plunged as much as 13 percent when markets opened, following The Information reporting that its next-generation AI chips would be delayed by three months, though it rebounded to a loss of around six percent by midday.

There are several factors at play, including the Federal Reserve's sluggish trajectory toward cutting interest rates and a payroll report revealing a sharp slowdown in the number of new jobs in the US last month.

But the sharp selloff could also be indicative of growing disillusionment with the priorities of the tech industry, with analysts becoming increasingly concerned that generative AI has yet to generate any significant profits despite untold billions of investment.

Could this week's tech wipeout be symptomatic of a growing "AI bubble" that's set to burst? It's tough to say for sure, and there are many factors at play — but there's no question that lean times for tech will tighten the timetable to profitability for AI experiments.

Big Dipper

Ever since the viral release of ChatGPT, tech giants have been pouring money into AI at a breakneck pace. Microsoft and Google released their second quarterly earnings last month, revealing staggering capital expenditures driven by expansions of AI data centers.

But whether this major infrastructure investment will pay off in the long run remains an open question

The big problem is that most AI efforts to date are positioned as freemium subscription services — but in a crowded market, customers haven't been opening their wallets at a meaningful scale.

Take it all together, and it's looking possible — though by no means a sure thing — that the AI industry could be in for yet another big freeze.

"Despite its expensive price tag, the technology is nowhere near where it needs to be in order to be useful," Goldman Sachs' most senior stock analyst Jim Covello wrote in a report last month.

Others, however, are viewing the recent dip as an opportunity.

"We maintain our positive view on the AI growth story, and think that the recent share price correction offers a good opportunity," global wealth management bank UBS wrote in a Friday note.

More on the AI bubble: Investors Are Suddenly Getting Very Concerned That AI Isn't Making Any Serious Money