Investors Have The Ai Jitters Again

Investors are once again worried that AI is on the verge of falling apart. The Nasdaq 100 briefly fell into correction territory yesterday, after several hyperscalers, chipmakers, and storage providers’ stocks sank, dragging down the rest of the tech-heavy index. It ultimately finished the day down by less than 1%, underscoring the industry’s constant whiplash as investors jump at every sound.

What happened: The sell-off started Tuesday in Asian markets, specifically Taiwan, Korea, and Japan. Samsung Electronics and SK Hynix, major memory manufacturers, each dropped by over 15%, while storage provider Kioxia fell by 18%. Korea’s Kospi index, often seen as an early barometer for US AI stocks, sank by more than 10%, and trading was briefly halted.

Then, on Tuesday morning stateside, US companies started dropping:

• Memory company Micron fell by almost 9%, while semiconductor manufacturer Sandisk closed more than 14% in the red.
• Despite massive AI server sales and lucrative new government contracts, Dell’s stock finished yesterday down over 8% (it’s still almost 200% this year).
• The Dow closed up more than 500 points as investors rotated into industries that did not give them as much heebie-jeebies as AI.

The AI industry feels like it’s atop a loose rock pile…

...an awesome discovery for anyone under the age of 12, but a nightmare for companies trying to inspire legitimacy. One of the industry’s biggest fears is China gaining steam: Chinese chipmaker CXMT had a stellar IPO earlier this week, and cheaper models are increasingly rivaling US ones.

In addition to wanting to start seeing some returns on investment, investors are also nervous about the industry’s pattern of circular financing: Nvidia could potentially give OpenAI $250 billion in financial backstop to help the ChatGPT maker lease a $500+ billion Ohio data center.

Time will tell. Amazon, Meta, and Microsoft—which are collectively expected to spend trillions on AI over the next few years—report earnings this week. Investors will be listening intently to whether or not they plan to continue to increase spending, or if they’re pumping the brakes.—MM

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