AI Stocks Tumble As Investors Question Returns and Bubble Risks

Investor enthusiasm for artificial intelligence wavered Tuesday as major tech stocks sold off.

The technology sector suffered a decline with Nvidia losing 3.5%, while Palantir fell by nearly 10% after the release of an MIT study showing 95% of companies investing in generative AI generate no financial returns, as suggested by Fortune.

The selloff appears linked to both the MIT report and earlier warnings from OpenAI CEO Sam Altman, who suggested investors could be caught in an AI bubble.

Fortune points out that OpenAI CEO Sam Altman compared current AI market conditions to the 1990s internet bubble where online company valuations skyrocketed before a major collapse.

While the MIT study blamed failures on corporate “learning gaps” and flawed integration rather than the AI models themselves, markets reacted sharply, signaling concerns about AI’s commercial viability. Nvidia, fresh off becoming the world’s first $4 trillion company, sank 3.5%, while Palantir slid nearly 10%, as noted by Fortune.

The Nasdaq’s losses spilled overseas. Korea’s SK Hynix, a key Nvidia supplier, lost 2.9%, and chip giant TSMC slipped 4.2%. SoftBank, long bullish on AI, dropped over 7%. In contrast, Alibaba and Tencent barely moved, and China’s SMIC gained 3%, according to Fortune.

“Tech stocks were under pressure yesterday, led by AI poster child stocks Palantir and Nvidia as investors worry the tech rally is due for a pullback/correction with the constant valuation arguments front and center,” Wedbush analyst Dan Ives said, as reported by Fortune.

“We are still in the early days of the AI revolution as the use cases are just starting to massively expand as more companies recognize the value creation being driven by a handful of tech companies led by the Godfather of AI, Jensen [Huang], and Nvidia,” he added.

High-profile figures have long warned about overvalued AI investments. Bridgewater founder Ray Dalio said, “There’s a major new technology that certainly will change the world and be successful. But some people are confusing that with the investments being successful,” reported Fortune.