#MetaSellsComputeTriggersChipSlump

Is the AI Boom on the verge of a Reality Check? Market reaction to Metas new developments was really interesting. On the one hand we saw Meta surge, on the other hand AI chip stocks plunged, signalling to me that investors may be starting to challenge one of the underlying assumptions in the AI boom: demand for computing capacity is going to expand in an unlimited fashion.

If Meta is in a position to sell excess compute capacity, surely it signals that the supply of such compute capacity is starting to equal the demand for it. Thats not how the AI story of insufficient supply for everyones demands went the past couple years!

I personally dont think this implies the cycle is over – innovation doesnt go into straight line growth. I am almost certain that in boom times like we have had with AI, companies overbuild their necessary infrastructure, and only after the initial infrastructure is built does growth slow down before the next wave comes.

Instead I think this is to do with valuation. The expectation across pretty much every AI-related stock has become so lofty, that there is very little room for negative news. As such small news items such as the below can cause significant contractions of stock price, as it did this week.

From a crypto traders perspective, I watch AI very carefully as it is a great barometer of market sentiment. When the investment community starts to shy away from high growth stocks, crypto tends to experience some headwinds. Conversely if the correction is merely a correction, then it may offer great opportunities in the space long term.

At the end of the day, I believe that the market is reassessing expectations as opposed to fundamentally abandoning the AI space, given that technology continues to advance rapidly, however, may now look a little different than the “everyone goes up together” rally we’ve seen over the past 12 months.

Expectations will come back to earth, and fundamentals will once again start to matter more than hype going forward. The upcoming earnings season should confirm whether we are seeing a merely healthy correction, or the start of something more structural.

What do you think of the AI sector slump: healthy reset, or did the AI trade get overextended?
#AI #Markets @Gate_Square