Gavekal Research analysts suggested in a note Monday that the recent market turmoil signals the start of the AI bubble’s implosion.
Investors have witnessed significant losses across stocks, currencies, and commodities, with the tech sector particularly hard-hit.
According to Gavekal, multiple factors contribute to this decline, including the US economy seemingly stalling, Chinese economic disappointment, and the implosion of the yen carry trade.
Additionally, geopolitical tensions and political uncertainties in the US and Europe have exacerbated market instability.
The firm says that one of the clearest indicators of the AI bubble’s burst is the discrepancy between tech companies’ promises and their performance.
“A couple of quarters ago, tech companies were falling over themselves to tell investors how AI would soon boost sales and earnings into the stratosphere,” Gavekal notes.
However, recent earnings reports reveal that despite significant investments, AI has yet to deliver the anticipated financial returns. This revelation comes at a time when many tech giants are struggling to meet investor expectations.
They add that the market’s confidence was further shaken by two major announcements: Berkshire Hathaway (NYSE:) slashing its holdings of Apple shares (NASDAQ:) by half, and “Intel (NASDAQ:) announcing it will shed 15,000 workers, 20% of its workforce.
These moves raise questions about the health of the tech sector.
Gavekal states: “Today, if the world is about to embark on a future of massive AI spending which justifies paying nine times book value for the global semiconductor index, why does Intel have to fire a fifth of its staff?”
They add: “If the US really has cut the legs out from under China’s semiconductor industry, then why are shares in one of the US national semiconductor champions, which in recent years has benefited from massive government largesse, collapsing to an 11-year low?”
Drawing parallels to the 2008 financial crisis, Gavekal suggests that these developments could signal a broader downturn in the tech industry. The analysts argue that just as the 2008 crisis exposed the vulnerabilities of the banking sector, current events may reveal the overvaluation and unsustainable promises within the AI and tech sectors.
Ultimately, Gavekal believes its assessment leaves investors with a critical decision: either view the recent news as temporary noise or acknowledge a fundamental shift in the tech market’s trajectory.
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