Key Points:
- Investors are moving from AI hype to practical concerns.
- Software stocks have dropped double digits due to replacement fears.
- Microsoft and Amazon shares tumbled nearly 18% recently.
- Analysts describe the market as a dangerous “sniper’s alley.”
Investors are no longer starry-eyed about artificial intelligence. According to a new report from Deutsche Bank, the market has shifted from seeing AI as a “magical vision” to worrying about how it actually works in the real world. This reality check is hurting technology stocks significantly. Over the last three months, software companies have seen their value drop by double digits. Investors are scared that new AI tools will simply do the jobs these companies currently charge for.
The selloff is hitting the biggest names in the business hard. The tech-heavy Nasdaq Composite has fallen more than 5% since late January. Even the “Magnificent Seven,” a group of huge tech companies, is down over 8%. Microsoft and Amazon have taken the hardest hits, tumbling 17% and 18% respectively.
Wall Street is starting to question if the massive amount of money these companies are spending on AI infrastructure will ever generate a real profit.
Deutsche Bank analysts describe the current market as a “sniper’s alley.” They believe traders are now targeting specific sectors that AI might wipe out. The fear is that automation will make many existing business models useless. Rather than lifting all boats, AI is now picking winners and losers.
This marks a sharp change from the early days of ChatGPT in 2022. Back then, almost everything in the sector went up. Now, there is a clear divide. Companies that build the physical equipment for AI are doing well. However, service and software companies are struggling because it is unclear if they will survive the changes.
Analysts note that when investors feel doubt, they simply sell. The problem is that valuing AI companies is getting harder. If AI models become common and cheap commodities, the real money might lie in inventions we haven’t seen yet. Because the future is so unpredictable, many investors are choosing to step back from the frenzy to protect their money.
