A seemingly unstoppable rise in stock prices since investor panic over US President Donald Trump's tariffs abated in April might finally be coming to a halt.
Markets were on track to drop for their fourth straight day on Tuesday, as worries abound over the health of the US economy and about sky-high valuations for tech and artificial intelligence companies.
There are hints the AI boom might have reached a peak, at least for now, giving market watchers flashbacks to the late 1990s internet bubble. When it burst in 2000, countless internet start-ups were wiped out, tens of thousands of people lost their jobs and venture capital investments froze.
The internet survived and became the next big thing, but investors, developers and banks still bear scars from the episode. Some are worried that with AI investments eclipsing those of the dot-com frenzy, something is lurking.
Google's chief executive Sundar Pichai on Monday hinted there may be cause for concern, telling BBC News that “there are elements of irrationality” with AI investments.
Mr Pichai also spoke at length about why he felt AI investments would eventually pay off, but his words caused some to take notice.
He also said that no company, Google included, would be immune if the AI bubble were to burst.
US stocks continued their slide on Tuesday, largely pegged to concerns about valuations in AI-related stocks.
The S&P 500 suffered its fourth straight losing session after ending the day 0.83 per cent lower, while the Dow Jones Industrial Average slid 498 points, or 107 per cent. The Nasdaq Composite fell 1.21 per cent.
Analysts have been warning that the US stock market could face a correction because of how high prices have risen since April.
Peter Andersen, founder of Andersen Capital Management, hinted of a possible chasm widening between the expectations from AI promises and the reality of what the technology can currently do.
“I'm noticing more narratives creeping in on how much is going to be spent, are we going to see results, how much energy it's going to cost,” he told The National last week.
Chip company Nvidia has particularly weighed on markets. Its shares ended Tuesday's session trading about 2.7 per cent lower. Fellow Big Tech companies Amazon and Microsoft fell 4.43 and 2.70 per cent, respectively.
Investors are monitoring the company's third-quarter earnings, due to be reported after trading closes on Wednesday.
Japanese firm SoftBank sold its entire stake in Nvidia for $5.83 billion to help finance AI investments last week.
And Peter Thiel's hedge fund also sold its entire Nvidia stake in the third quarter, according to a 13F filing.
AI bubble: executives, officials and analysts react
Views vary on whether AI is in a bubble and, if so, when it might pop.
Jay Zagorsky, a professor at the Questrom School of Business at Boston University, said AI's inflated expectations will lead to a “macroeconomic crash”, noting that businesses might need to wait a long time to see a return on investments in AI.
“It will take longer to transform the world than everyone thinks,” he said, suggesting that AI could lead to more redundancies in the labour market, which might blunt overall economic gains.
But Microsoft's president and vice chairman Brad Smith is less concerned.
Mr Smith, who has overseen Microsoft's AI investments and projects, recently told Fortune magazine that he believes AI won't become a bubble as along as everyone stays “thoughtful and disciplined".
That interview, however, caught the attention of long-time technology analyst and equity researcher Benedict Evans.
“I was worried but now I feel very reassured,” he sarcastically posted to Threads.
When fears of an AI bubble started to gain traction last month, US Federal Reserve chairman Jerome Powell seemed to suggest that attempts to draw parallels with the dot-com crash were not appropriate.
“This is different in the sense that these companies, the companies that are so highly valued, actually have earnings and stuff like that,” Mr Powell told reporters.
He said the dot-com era firms that went bust were more “ideas rather than companies”, while today's AI companies have business models and profits.
Mr Powell also suggested that the investment in AI equipment and infrastructure was an overall win from a standpoint of economic activity.
Several weeks ago, Treasury Secretary Scott Bessent, seemed to suggest that AI bubble fears were much ado about nothing, and that methodical progress was being made in terms of economic benefits stemming from AI.
“When I talk to Silicon Valley investors and corporate America, they think the AI implementation is just really going to start biting in terms of productivity in the first and second quarter of next year,” he said.
OpenAI's chief executive Sam Altman, who helped to put AI on the global map with his company's ChatGPT being released in 2022, recently said his company was seeing unprecedented demand.
“Increasingly we see the answer is to [provide] much more capacity so that we can serve the massive needs and opportunity with this,” he told CNBC in September.
