Don’t Panic, But AI Stocks Are Suddenly Lurching Downward

Investors are becoming increasingly concerned that AI companies may be significantly overvalued — and may struggle to justify their massive hype by successfully growing profits.

So it’s naturally concerning that shares of AI makers, including Oracle, Nvidia, AMD and Amazon, fell sharply on Tuesday, in the wake of concerns about massive valuations that have propped up the entire US economy for months now.

Shares of artificial intelligence chip maker Nvidia fell less than four percent, while shares of rival AMD fell less than three percent today. Software giant Palantir was the hardest hit, falling more than nine percent, despite beating Wall Street expectations with its third-quarter earnings.

What all of these companies have in common is a tremendous price-to-earnings (P/E) ratio. CNBC Reports, which measure a company’s stock price relative to its earnings per share. It is often used to determine whether a company is undervalued or overvalued.

In the case of Palantir, the company’s valuation is at more than 200 times its forward earnings, suggesting that investors may start asking tough questions about the company’s ability to sufficiently boost its revenues.

The sudden decline comes after months of investor euphoria. The S&P 500 is up more than 20% over the past six months alone, then down just under 2% over the past five days, suggesting growing concerns about hype around artificial intelligence that has grown too much, too quickly. Companies are pouring hundreds of billions of dollars into building out key AI infrastructure, though revenues have lagged far behind.

“We haven’t really seen any major corrections or any real pressure on stocks since April,” said Anthony Saglimbini, chief market strategist at Ameriprise. CNBC. “Earnings are good, but I think investors are starting to question themselves, based on the pace of growth [capital expenditure] Investments from some of the key Big Tech companies, “Will they see earnings growth over the next year to justify their capex levels?”

Saglimbini said he “fully expects that you will see some downturns.”

Goldman Sachs’ David Solomon also raised alarms, predicting “a 10 to 20 percent decline in stock markets sometime in the next 12 to 24 months.”

Just last week, Meta CEO Mark Zuckerberg announced that the company would significantly increase its already massive spending on AI this year — news that was met with investor skepticism. The company’s shares fell more than 11 percent on Thursday and have fallen more than 16 percent over the past five days.

It’s a perilous moment, as experts warn that the AI ​​boom cycle is supporting a weak economy. The consequences of a sudden collapse can be enormous.

Meanwhile, some are benefiting from falling stocks. Most notably, investor Michael Burry, owner of the famous movie “The Big Short,” revealed that he had placed bets against Palantir and Nvidia this week. Perry predicted the US housing market bubble and subsequent crash in 2008.

We will have to see if he is right about the impending correction. Not surprisingly, Alex Karp, CEO of Palantir, is skeptical of Perry’s bets.

“The two companies he’s shorting are the ones making all the money, which is very strange,” he said. CNBC today. “The idea that chips and ontology are what you want to shorten is crazy.”

More about the Artificial Intelligence market: Meta Stock is falling as investors are horrified by how much Zuckerberg is spending on faulty AI