The AI bubble burst? Global stock markets are experiencing a sharp downturn, fueled by anxieties that the soaring valuations of artificial intelligence (AI) companies might be heading for a rapid cool-down. This has sent ripples across the financial world, impacting markets in the US, Asia, and Europe.
This recent turbulence follows warnings from bank leaders, who are cautioning about a potential major stock market correction. This comes after a period of record highs, leading to concerns that some companies are overvalued.
In the US, the tech-heavy Nasdaq and the S&P 500 witnessed their most significant one-day percentage drops in nearly a month on Tuesday. Tech stocks dragged the Nasdaq down, resulting in a 2% loss. Even the “magnificent seven” AI-related stocks, including giants like Nvidia, Amazon, Apple, Microsoft, Tesla, Alphabet (Google's parent company), and Meta (Facebook, Instagram, and WhatsApp's owner), experienced one-day declines. The S&P also closed down just over 1%, weighed down by tech stocks, particularly data analytics company Palantir, which plummeted by almost 8%, despite announcing a positive revenue outlook the previous day.
But here's where it gets controversial... Palantir has become a target for short-sellers, investors who bet on a company's stock price falling. Michael Burry, known for predicting the 2008 financial crash and the inspiration for the movie The Big Short, placed bets against Palantir and Nvidia, two prominent AI companies. This move sparked criticism from Palantir's CEO and contributed to the stock sell-off. Palantir’s chief executive, Alex Karp, criticized Burry and other short-sellers for questioning the AI revolution.
Following the US market's lead, Asian markets saw their sharpest decline in seven months on Wednesday, as worries about tech stocks spread. Indices in Japan and South Korea dropped more than 5% from their record highs. European markets, including the UK, France, and Germany, also experienced slight drops on Wednesday morning.
The market downturn coincided with warnings from the chief executives of Morgan Stanley and Goldman Sachs about a potential market correction. They echoed the concerns of Jamie Dimon, the head of JP Morgan Chase, who had previously warned about the risk of a market crash within the next six months to two years. Jim Reid, an analyst at Deutsche Bank, noted a growing discussion about an equity correction. He added that the recent market activity reflected a risk-off move, driven by concerns over high tech valuations.
And this is the part most people miss... Other analysts are questioning the investment in AI companies, highlighting that most investment has been directed towards a small group of tech companies, particularly OpenAI and Nvidia, with little return on investment so far.
Adding to the uncertainty, the price of Bitcoin briefly dipped below $100,000 for the first time since June, as investors moved away from riskier assets like cryptocurrencies due to economic concerns. After reaching a record high of over $126,000 in early October, Bitcoin fell by 3.7% during the month, marking its worst monthly performance in the last decade, according to CoinMarketCap.
What do you think? Are these market fluctuations a sign of a necessary correction, or is this the beginning of something more significant? Share your thoughts in the comments below!
