What to Expect from the AI ​​Sector as Nvidia Shares Fall

Nvidia Corporation shares are down more than 17% over the past five days. While that was a big drop that wiped out hundreds of billions of dollars in market value, the company has posted an impressive 120% gains year to date and has returned a staggering 2,270% over the past five years.

The sell-off has led some to wonder whether AI, which has become one of the hottest industries to invest in, is overvalued or a bubble. The stunning gains at Nvidia and other tech companies that make the semiconductor chips needed to power AI hark back to the dot-com bubble of a quarter-century ago, but experts note there are some key differences.

“In many ways, this couldn’t be more different from the dot-com boom of the late ’90s,” said Jamie Cox, managing partner of Harris Financial Group. Washington Examiner“Because unlike those, companies actually make money. They’re not a money-making idea, it’s actual sales and actual delivery of materials.”

One factor that could push Nvidia’s stock down is the news that the Justice Department has subpoenaed Nvidia as part of an investigation into whether the company is violating antitrust law.

Cox said the Justice Department is investigating whether Nvidia favored larger players in the industry over smaller ones.

“And you know, that doesn’t look good either. So I don’t think it has anything to do with AI in general,” he added.

Sameer Samana, senior global markets strategist at Wells Fargo Investment Institute, noted that bubbles are difficult to spot until they form.

“I mean, bubbles are only really visible in retrospect,” he said. Washington Examiner.

Samana said it’s also possible that AI really is a revolutionary technology and that people are under-investing in AI companies.

He also noted that it would be difficult to compare the current situation of the largest AI companies to the dot-com bubble, because during that time profits were negligible.

“There was no real business there, except the promise of the Internet, so to speak, and that if a company had a .com in its name, its value would double or triple,” Samana said.

Many AI companies are also profitable in other areas and of their own accord. For example, players like Meta, Google, Microsoft, and Apple have shown profits and proven to be good choices on Wall Street in the pre-AI era.

“I don’t know what AI means for their companies, but even if, let’s say, AI disappeared tomorrow… we’re all still going to be using, let’s just call it productivity software in the office. We’re all going to buy smartphones, we’re all going to be using social media,” Samara said.

Rodney Lake, associate dean for undergraduate programs at George Washington University and director of its Investment Institute, said: Washington Examiner that the future of artificial intelligence companies is difficult to predict.

“I think there could definitely be companies that are discounted, but not necessarily in a bubble,” he said. “There will be companies that are growing, and in that mix, there could be companies that are in bubble territory.”

Lake said it’s hard to say whether Nvidia’s crushing year-to-date profits are sustainable. They could be if demand for AI chips grows beyond expectations.

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But he added that there could be companies that are just “riding the wave” and investors will think they are part of the “AI revolution” when they are not necessarily so. Such companies could experience speculative bubbles bursting.

“And I don’t think it’s going to be a repeat of 2000, I think it’s going to be different,” Lake said.