- The Wall Street giants are facing a severe downfall amid a waning AI narrative.
- Nvidia’s stock price closed down 3.15% on Thursday, Palantir’s stock plummeted 5.85%.
- Bank of America warns that the “bubbly is on ice.”
The AI narrative that swept through the markets with such fervour is beginning to lose steam. In the high-stakes technology space, the air is thick with uncertainty as investors scramble to assess the true value of the “Magnificent 7” tech companies.
Notably, the AI-driven rally that propelled these stocks to surprising heights is showing signs of fatigue, and the market’s scepticism is manifesting in a brutal sell-off. With Nasdaq 100 futures down 0.36% and S&P 500 futures flat but volatile, it’s clear that investors are reevaluating their bets on the tech sector.
Bank of America’s stark warning- “The bubbly is on ice”- has added fuel to the fire, leaving many to wonder if the AI bubble is about to burst.
What Happens to Wall Street Giants?
According to a recent Fortune report, the Wall Street giants, including Nvidia, are facing a significant downturn. Nvidia’s stock price, which had surged after its impressive earnings report, reversed course and closed down 3.15% on Thursday. This sudden drop has wiped out billions of dollars in market value, leaving investors worried about the sustainability of the tech sector’s growth.
This sell-off is not limited to Nvidia, as other tech giants are also taking a hit. Palantir’s stock plummeted 5.85% on Thursday, while SoftBank Group’s stock lost 11% in Japan. The decline of these Wall Street giants is a stark reminder that even the largest and most successful companies can be vulnerable to shifts in investor sentiment. As investors continue to grapple with the uncertainty surrounding the tech sector, the market is likely to remain volatile.
Crypto-related stocks are among the biggest losers, with Coinbase plummeting 7.44% yesterday and Michael Saylor’s Bitcoin-focused Strategy dropping 5%. Both stocks saw even steeper declines in overnight trading
UBS’s Paul Donovan stated that the recent decline in BTC price was akin to hyperinflation if were a currency. He noted that the collapse in demand for crypto assets would lead to an imbalance that couldn’t be corrected by reducing supply, which is a key characteristic of a currency. He added,
“When crypto demand collapses, there is no possibility of reducing crypto supply to bring about balance. … Money supply needs to fall when money demand falls—if it cannot, hyperinflation will be a regular risk. Hyperinflation is why crypto cannot be a currency.”
Unveiling the AI Effect
Artificial Intelligence has been a double-edged sword for the tech sector and Wall Street behemoths. On one hand, AI has been a major driver of growth for many tech companies, particularly those in the Magnificent 7 group.
Nvidia’s dominance in the AI chip market has been a key factor in its success, and its earnings report highlighted the strong demand for AI-related products. However, the increasing reliance on AI has also raised concerns about the sustainability of this growth and the potential risks associated with it.
An ING article published on November 19 explained the growing number of errors generated by artificial intelligence. The analyst wrote,
“AI’s habit of making stuff up is a growing concern…leading AI systems generate false claims at a rate of up to 40%… While older models refused to answer almost 40% of queries, newer models are designed to answer virtually every request. … this shift from accuracy to fluency poses serious misinformation risks.”
The uncertainty surrounding AI’s influence on the market has contributed to the recent sell-off among Wall Street companies. Investors are seeking clarity on how these companies plan to navigate the challenges associated with AI.
