Sharp falls in the value of chip makers have stoked investor concerns that the euphoria around artificial intelligence (AI) related companies is fading.
The AI revolution has promised to revolutionise the way we work and live and has created vast wealth for investors in a handful of companies predominantly in the US and Asia.
Companies desperate to be the winners of a transformative technology that many have compared to the advent of the internet, the telephone, even electricity itself.
As Sir Demis Hassabis, founder of UK company Deepmind, which was eventually bought a decade ago by US giant Google, has commented Artificial Intelligence “cannot be compared to standard technological breakthroughs, not even ones as consequential as the internet or mobile. It is much more akin to the discovery of electricity or fire.”
Referring to the fact that many chips are made of silicon, which is essentially sand, he added “we’ve essentially found a way to make sand think. It’s miraculous.”
The euphoria for this technology has boosted the value of some world’s biggest companies even as they spend hundreds of billions of dollars on the building blocks of the technology.
But over the last few weeks, the value of some of the companies that make those building blocks has plummetted – prompting some to question whether what some have dubbed “the AI bubble” is about to burst.
Some of the sharpest falls have been in Asia, with shares in Korean chip makers such as SK Hynix and Samsung down 46% and 35% respectively over the last month as investors worry the recent boom in demand for the chips that power AI is unsustainable.
Yet these shares still are up threefold and fivefold respectively over the last year, leading many to conclude that some caution and profit taking after such massive gains was inevitable – and indeed healthy.
The South Korean stock market is notoriously volatile, but concerns have spilled over into the big US companies.
Shares in Google and Tesla plunged briefly before recovering last week after both firms pledged to spend billions more on AI in the months and years to come despite so far it losing them money.
And with other big names such as Meta, Microsoft and Amazon, reporting their latest financial results this week, investors have the opportunity to scrutinise just how much these companies are now betting on AI.
“There is still a healthy degree of scepticism about the ability of these investments to generate a commensurate level of return,” Russ Mould, an investment director at AJ Bell, said.
But according to leading tech investor Eileen Burbidge despite the concerns there’s not yet a serious reckoning.
“The AI bubble hasn’t burst but it’s letting out air,” she told the BBC.
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