Shares in Korean chip makers SK Hynix and Samsung have fallen 46% and 35% over the last month, stoking concerns that the euphoria around artificial intelligence is fading. Both stocks still sit well above where they traded a year ago, and one tech investor says the AI bubble is letting out air rather than bursting.
Sharp falls in the value of chip makers have stoked investor concerns that AI euphoria is fading, with shares in 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 are still 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 the concerns have spilled over into the big US companies.
Google and Tesla wobble on AI spending pledges
Google and Tesla shares plunged briefly before recovering last week after both firms pledged to spend billions more on AI in the months and years to come, despite that spending so far losing them money.
With Meta, Microsoft and Amazon reporting their latest financial results this week, investors can scrutinise how much these companies are now betting on AI. Russ Mould, an investment director at AJ Bell, said a healthy degree of scepticism remains about the ability of those investments to generate a commensurate level of return.
Leading tech investor Eileen Burbidge told the BBC there is not yet a serious reckoning: "The AI bubble hasn't burst but it's letting out air".
A reported Chinese breakthrough adds to the doubts
Another trigger has been a reported breakthrough in the manufacturing process by a Chinese company, potentially making China more self-sufficient in chip design and production. That has added to lingering concerns that Meta, Alphabet, Open AI and Anthropic will find it hard to charge end users enough to justify the hundreds of billions being spent on chips and data centres.
As a result, firms that have announced big increases in AI spending have not always met the same enthusiasm from investors. SpaceX, which is predominantly an AI company, has seen its shares fall 14% from its much-hyped stock market debut and nearly 50% from its peak in June.
Apple and the FTSE 100 gain from sitting out
Apple, which has largely sat out the AI arms race, has seen its shares rise 21% over the last month to reclaim its title as the world's most valuable company from chip maker Nvidia. London's benchmark FTSE 100, dubbed by some the "anti-tech index", briefly touched a record high.
Circular funding and data centre curbs add to the unease
Some of the big AI companies have taken big stakes or lent money to each other, and that circular funding means any potential failures could have a damaging impact on the fortunes of others. Meanwhile a growing number of national, state or local governments are pausing, banning or restricting new data centre construction on environmental grounds because of their vast water and energy needs.
Burbidge remains positive, saying anyone who bought shares in chip makers a year ago is feeling pretty good now.
Source: BBC News
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