Several major AI stocks have now entered correction territory. Nvidia shares, for example, are down more than 25% over the past month, shedding more than $1 trillion in market value.
A bear market, however, has hardly arrived. Many AI stocks have continued to gain value during the rout, including BigBear.ai, Amazon, and C3.ai.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
From a demand perspective, there’s very little to worry about regarding the long-term promise of artificial intelligence.
“AI demand remains strong,” stresses new research from Barclays. “What the market is questioning is funding, as hyperscalers keep lifting capex while free cash flow evaporates.”
The issue, therefore, is a matter of logistics and timing, not a matter of demand prospects. “AI fundamentals remain very strong in absolute terms,” Barclays’ research affirms.
Still, the potential impact of a bear market in the AI sector is difficult to ignore. After all, overly optimistic valuations may shrink even as demand remains strong. It won’t be difficult for a downturn in AI stocks to impact the rest of the market. Nearly half of the S&P 500’s value is now tied to AI companies, whether that is AI developers themselves or suppliers to the industry.
How should investors respond to the popping of the AI bubble? The history of the dot-com crash offers clear advice.
Investors should accept that AI adoption growth isn’t going anywhere
From a market-value perspective, technology companies suffered significantly during the dot-com bubble. The Nasdaq Composite (NASDAQINDEX: ^IXIC) fell nearly 80% over a 31-month bear market.
But here’s the thing: Internet adoption continued to grow unabated. According to data from the U.S. Federal Reserve, 36% of Americans were active internet users in 1999. In 2000, that figure grew to 43%, reaching 49% by 2001. By 2002, nearly 60% of all Americans were regular internet users.
So while market valuations plummeted, the actual underlying technology — the internet — continued to experience sustained success. Nearly every business on Earth, not just technology companies, ultimately benefited from the internet’s rise. So, to truly bet on the internet, it wasn’t necessary to buy only dot-com companies. In fact, in the long term, the wisest decision may have been the simplest: maintain exposure to broad market indexes, ensuring your portfolio will benefit no matter how the internet’s success is distributed.
