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For months now, investors have lived in fear that the stocks propelling the entire market higher could stumble—and bring the whole S&P 500 down with them.
This week, it feels like the dominos have started to fall, and the anxiety about an AI bubble is reaching a fever pitch. The latest indicator: today’s announcement that Meta Platforms is freezing its gigantic AI hiring spree.
The tech titan has shelled out incredible paychecks to bring researchers aboard its AI unit as Mark Zuckerberg races rivals like OpenAI to become the biggest name in artificial intelligence. But even Big Bucks Zuck has a spending limit, and he’s decided to close up his wallet only a few days after news broke that Meta’s AI group is undergoing its fourth restructuring in six months.
Big tech, big spenders: Investors are starting to get antsy, and want to see some tangible result from big tech’s AI spending bonanza, in which Google, Amazon, Microsoft, and Meta will dole out a combined $340 billion on AI datacenters just this year. Even crazier: a recent McKinsey report predicted AI spending will reach $7 trillion over the next five years to meet demand.
The hope is that this gargantuan spending will result in huge profits for these companies—but with actual returns remaining in limbo, this AI-fueled bull market is beginning to fizzle.
To bubble or not to bubble
Today’s news from Meta is just the latest in a series of body blows to the AI trade this week.
Fears of a bubble forming in the AI space began after OpenAI CEO Sam Altman admitted that startup valuations are “insane.” The bad news kept coming when MIT published a study showing that 95% of generative AI pilots are flopping.
In the days since, some of the highest-flying AI stocks on the market dropped hard. Palantir is the prime example: The secretive tech stock sold off for six days straight on the heels of a short seller report from Citron Research questioning its high valuation, calling it “detached from fundamentals and analysis.”
Nobody knows for sure whether AI stocks are in a dot-com era bubble—not even us (shocking, we know). But FT editor John Thornhill makes a good point: There will probably be multiple cycles of hype and crash as the AI revolution continues on. Bubbles can serve a purpose, he argued, resulting in the buildout of infrastructure that eventually leads to widespread adoption of the technology.
And if you ask Goldman Sachs, now is the moment to buy the dip when it comes to these flashy, momentum-driven tech stocks. If you’re a big tech believer, right now offers a great entry point into these stocks, which have been on a tear over the past year.
But we can’t promise it’ll be a smooth ride upward anymore.—LB