The current oversupply in artificial intelligence (AI) technologies has extended the timeline for recovering costs on significant AI investments, potentially pushing large corporations to reconsider their investment strategies.
The current oversupply in artificial intelligence (AI) technologies has extended the timeline for recovering costs on significant AI investments, potentially pushing large corporations to reconsider their investment strategies.
The recent bullish trend among the leading tech stocks, often referred to as the “Magnificent Seven,” may be slowing down due to growing investor dissatisfaction with the pace of technological advancements. The “Magnificent Seven” includes the top-performing tech giants: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla.
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According to Sandeep Rao, a senior researcher at Leverage Shares, the excitement surrounding these stocks is waning as AI development has not yet delivered the anticipated reductions in human labor costs. Rao pointed out, “The promise of significant savings on human labor costs in AI-focused companies has not materialized as expected, leaving investors disenchanted.” This disappointment may prompt investors to reevaluate their portfolios and consider alternative long-term investment opportunities.
Despite strong year-to-date (YTD) performances, with Nvidia up over 117% according to Nasdaq data, the overall AI-related spending by large companies has led to the creation of AI models that exceed current global demand. This surplus in AI capacity could prolong the cost recovery for these investments, leading companies to slow down AI spending.
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Rao further explained, “Tech megacaps are likely to slow down AI-related expenditures, shifting to a more milestone-driven approach. Meanwhile, investors, who have largely overcome their fear of missing out, are now leaning towards greater diversification.”
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Over the past month, all of the Magnificent Seven stocks experienced declines, with Tesla recording the largest drop of over 21%, followed by Nvidia with a loss exceeding 20%.
Additionally, the downturn in these stocks could have broader implications for other markets, including cryptocurrencies. Akshay Nassa, the founder of Chimp Exchange, noted, “The well-documented correlation between stock market performance and cryptocurrency values suggests that as major tech stocks falter, investor sentiment often shifts away from alternative assets like Bitcoin.” This view is echoed by Alvin Kan, Chief Operating Officer of Bitget Wallet, who believes that further declines in the Magnificent Seven could exert additional pressure on Bitcoin prices.
