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The tech pullback this week wasn’t anywhere close to a Deepseek moment, when investors questioned the long-term viability of Silicon Valley’s AI transition after the Chinese company competed favorably with OpenAI at a fraction of the cost.
But Wall Street did hit the brakes, alarmed by a handful of pessimistic headlines amplifying long-standing criticism about ballooning valuations and the costs of the AI boom.
While it’s too premature and extreme to forecast a major failure or correction — AI stocks have kept plenty enough gains to keep the S&P 500 in the 6,300s — it’s clear that the market is signaling a measure of unease with current measures of success.
It may not be enough anymore for the tech giants and other AI players to tout their enormous capital expenditures and new chatbot initiatives if the market demands actual results. And investors, enriched by rising stock prices (but also pressured by the staggering weight of them), keep asking: Where are they?
For most companies using AI, you won’t find them. That’s the punch-in-the-stomach takeaway from a report published by an initiative at MIT that provided at least part of the moment’s catalyst.
The research revealed that while roughly 5% of AI pilot programs enjoyed rapid revenue acceleration, the other 95% of companies in the dataset delivered little to no measurable impact on their business. Generative AI initiatives, to be sure, are producing huge returns for a small subset of startups and firms. But the paper highlighted that failed projects were the norm, rather than the exception.
As stark as those numbers are, the results might be expected. After all, a new technology that doesn’t require technological mastery is also attracting entrepreneurs motivated by a get-rich-quick ethos. And as pliable and dynamic as generative AI tools appear to be, large language models and their derivative products can’t address every market bottleneck or consumer pain point. A salesperson yapping about AI deployment and ROI can resemble a “solution” in search of a problem.
Other factors sparked the tech sector wobble.
Meta (META), wielding a gargantuan budget to assemble an elite AI geek squad, has embarked on another internal restructuring. Not even the daring aim of achieving superintelligence can defeat the tedium of corporate bureaucracy.
And OpenAI’s (OPAI.PVT) Sam Altman recently warned that investors might be in for some pain as an AI bubble bursts.
“There will be periods of irrational exuberance,” he said last week. “But on the whole, the value for society will be huge.”
As AI favorites Nvidia (NVDA) and Palantir (PLTR) slipped this week, a broader narrative gained momentum. Perhaps this was another inflection point showcasing the potential paradigm shift away from the dominance of a handful of tech stocks to a less lopsided market.
Don’t tell that to the tech bulls, though. Especially as Nvidia prepares for a must-watch earnings report next week that could wipe these worries away — or compound them. Tech skeptics will be proven wrong, again, wrote Wedbush analyst Dan Ives in a note on Wednesday, viewing the tech losses as a blip.
“While the bears will fret about valuations and have been skeptical of the historical tech rally, we stress that if you focus solely on valuation looking out a year with P/E … you would have missed every transformational growth tech stock the last 20 years,” he said.
Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.
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