Brutal Day on Wall Street Raises 'AI Bubble' Concerns for Nvidia, More

Artificial intelligence stocks have been on the decline, causing many on Wall Street and elsewhere to wonder if AI is about to be considered a stock market bubble.

After a tough few days for tech stocks and the broader market to close out July and open August, the Dow on Monday fell more than 1,000 points, or 2.6%. The Nasdaq fared even worse, losing 576 points, or 3.4%. The S&P 500 index fell 3%. Fear is definitely driving the market.

Canalys' Alex Smith

"A combination of macroeconomic events have largely been behind the falling stock market these past few days," Alex Smith, VP of channels at Canalys, told Channel Futures. (Informa owns both Channel Futures and Canalys.) "When you have big-time investors like Buffet focusing on cash hoarding, it demonstrates that many investors are not leaning into corporate America right now."

Despite the concerns, Smith is still confident.

"Share prices clearly have an impact on how public companies execute plans in the medium to long-term, but we still see an economy that is growing, and a market that is spending on technology. H2 could be a strong period for tech companies if businesses start to be conservative in 2025 budgeting, and therefore look to get their spending done in 2024."

One of the major variables behind the shrinking stock market has been lackluster earnings from technology companies across the board.

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Technology companies have made massive promises about how artificial intelligence would revolutionize nearly every part of the industry, which is why tens of billions of dollars have been spent on the tools to fund them. The profits, however, haven't been there just yet. It's forced some companies to slow their spending down and make cuts. This culminated in decisions like Intel's call to cut more than 15,000 workers from its workforce.

Big tech companies like Google, Microsoft and Amazon saw their shares dip after their earnings reports failed to convince investors that their massive investments in AI would lead to significant improvements in profits in the short-term.

Nvidia and Super Micro Computer (SMC), best known for providing the necessary components to build the hardware required to power AI, lost 6% and 2%, respectively, on Monday, according to CNBC, which referred to the trading day as "carnage." Nvidia has lost more than 30% of its value since it reached its all-time high, while SMC has lost more than half its value.

Omdia's Bradley Shimmin

Part of the question around the so-called "AI bubble" centers around whether investors and providers had a realistic understanding of how some want to use the technology, according to Omdia analyst Bradley Shimmin.

"We're two-and-a-half years into this gen AI era and companies are really trying to figure out if AI is going to meet their expectations," Shimmin told Channel Futures. (Informa owns both Omdia and Channel Futures.) "And if the product can be made to meet those expectations. That's why I think there's going to be a lot of moderation around AI's uses in the wake of recent events."

These losses coincide with reporting from The Information claiming that Nvidia is delaying its newest AI chip by three months, which could have a big impact on other big tech companies.