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This is the conclusion of today’s Morning Brief, which you can read Sign in Delivered to your inbox every morning, along with:
It’s no coincidence that talk of an AI bubble is getting louder as bullish trends become more confident. At the same time, valuations in the technology sector continue to rise a nagging feeling that things were about to fall apart. FOMO trading largely explains why the rise of technology can also seem so dangerous and even fragile.
But a more charitable reading looks like this Money chasing so many unproven AI plans as a rational approach to the prospects of enormous profit, however slim they may be. Call it a “rational bubble.”
When the potential rewards are so large, it makes sense for the market to adopt a sort of venture capital approach to AI investing – making multiple bets and risking more than is comfortable. A single winner – or a handful of successful investments – can more than offset the losses.
Now, however It can get ugly and they have.
As Wedbush analyst Dan Ives wrote in a note to clients on Friday, this week’s tech decline was a brutal moment for investors. What started as pressure against Palantir (PLTR) last week, even after the company reported impressive resultsdisappeared into further conversations about AI bubbles and united concerns about Nvidia’s (NVDA) China sales, OpenAIs (OPAI.PVT) perceived hubris and “The Big Short” investor Michael Burry bet against it AI darlings.
But even as Ives recognized the bad sentiment surrounding AI, he was just as quick to advocate for doubling down.
“In short, we view this as a short-lived mini-panic moment for tech stocks, as we expect tech stocks to experience a major rally later this year as investors look to take advantage of the AI revolution and the 2nd/3rd/4th derivatives currently playing out in consumer and corporate names,” Ives said.
He sees the use of AI around Nvidia and the Big Tech platforms as just the first wave of technology transition. For every $1 spent on Nvidia, he believes $8 to $10 is generated by downstream AI products and services. (Nvidia is expected to report its results on Wednesday, in what Ives calls a “key confirmatory moment.”)
Alex Karp, CEO of Palantir, said in an interview this week Yahoo Finance’s annual investing conferencecriticized some of the analysts for discouraging investors from putting money into the company, which, like some others, has attracted a lot of retail interest affected about its high rating.