Investors are flocking to artificial intelligence stocks, yet those seeking quick profits might need a reality check.
Nvidia (NASDAQ:NVDA) hit a record intraday high this week ahead of its 10-for-1 stock split on Friday. Simultaneously, new product announcements have spurred demand for stocks such as AMD (NASDAQ:AMD), c3.ai (NYSE:AI), and Super Micro (NASDAQ:SMCI). Despite Wall Street’s enthusiasm, some caution is warranted.
During a discussion at Bank of America’s global technology conference, Nutanix (NASDAQ:NTNX) CEO Rajiv Ramaswami expressed concerns about over-inflated expectations for AI. “AI investments have outpaced reality,” he said, emphasizing the need for a valid business case to justify the costs. “There is a disconnect between the hype and the economic viability of AI investments.”
AI has numerous potential applications, from generating text and videos to predicting supply chain demand. However, many tech companies have not yet seen substantial returns on their AI investments, and the development of AI applications, which requires significant computing power, is expensive.
“There are promising use cases for AI, but we need to ensure they are economically sustainable,” Ramaswami added.
Pure Storage (NYSE:PSTG) founder John Colgrove advised maintaining realistic timelines for AI’s impact, cautioning against short-term overhype. “AI will be transformative, but it will take longer than people anticipate. What is expected to happen in the next 10 years might actually take 25 years,” he explained. “Building the necessary infrastructure to realize AI’s full potential takes time.”
In the startup ecosystem, enthusiasm for AI has already begun to wane. Venture capital deal value for pre-seed and seed-stage AI startups fell to $122.9 million in the first quarter, a 76% drop from its peak in the third quarter of 2023, according to PitchBook data. Questions surrounding profitability are a major driving factor.
For investors navigating the AI hype, State Street’s Michael A
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