First cracks appear in AI stocks

Investors are getting jittery about AI value

Tech industry shares have fallen over fears of an AI investment bubble, with one notable market watcher already betting on failure.

The excitement around generative and agentic artificial intelligence has boosted markets around the world in recent years, but fears of a bubble are growing.

Investors are growing increasingly jittery, with major stock indices falling this week. Markets in Asia were particularly hard hit, with the Nikkei 225 closing down 2.5% after a significant crash in Softbank’s share price.

Shares in other Asian firms like Samsung and TSMC were also down, with national stock exchanges feeling the repercussions.

Western companies were not immune, with even the most prominent starting to feel the heat. Amazon, whose shares reached a record high on Monday on the news of its partnership with OpenAI, fell 1.84% on Wednesday; and Nvidia, the world’s most valuable company, dropped almost 4%.

The Nasdaq Composite was down 2% overall.

Many of these share movements are directly related to concerns about AI, said investment analyst Vincent Fernando of consultancy Zero One.

“The market can worry if the company is overspending on AI and won't make a sufficient return on that spend.”

Although Fernando’s comments were specifically about SoftBank – which has invested heavily in the AI sector – they can equally apply to other tech firms spending eye watering sums on the technology.

Financial analyst Farhan Badami of eToro said “fatigue over AI and the current earnings run” has forced investors to question the sustainability of today’s AI hype

"Investors seem to be feeling that some of the super-high valuations out there aren't making sense, and AI enthusiasm has definitely fuelled those stretched valuations."

One investor, at least, is already preparing for the eventual bursting of the AI bubble.

Hedge fund investor Michael Burry, who (in)famously made millions by betting against the US housing market in 2008 – as portrayed in film The Big Short – has shorted companies including Nvidia and Palantir to the tune of $1.1 billion.

Ironically, that move itself sent Palantir’s shares down 8%.

Computing says:

There’s plenty of evidence for this tremble marking the start of a correction, now that the market has realised the reality of AI doesn't yet match the hype.

OpenAI’s CFO even suggested this week that the US government could help fund its (overly ambitious?) expansion plans, which was unpopular with investors.

Nvidia’s weakness is especially noteworthy, coming on the back of its $5 trillion valuation last week.

In a recent interview with The Channel Company’s chief content officer and former Computing editor Stuart Sumner, ThreatLocker CEO Danny Jenkins said Nvidia would need to sell “10 to 20 times” the number of chips on its books today to match its valuation, so there’s an argument to be made that the company is overpriced.

If AI continues to fall into the trough of disillusionment, Nvidia’s value – and possibly most of the tech industry’s – will go with it. Proving value has suddenly become an existential necessity.