After a series of data releases in the technology sector, market participants began to express concerns about artificial intelligence trading.
What investors are concerned about is the construction scale of AI, as well as whether the returns will appear quickly enough to justify this investment.
The overall bull market in the stock market, which was initially driven by the AI craze, is still intact, with the S&P 500 index just a few percentage points away from its record high. The shift of funds to non-AI stocks such as Procter & Gamble and Berkshire Hathaway has also provided support for the market. However, AI related stocks are already in a bear market or are on the verge of entering one.
It might be time to take a profit now, or to hedge against risks.
This week, the public documents submitted by the cutting-edge algorithm company Anthropic did not contain much information regarding future revenue; previously, the company announced a slowdown in sales growth from the second quarter to the third quarter. At the same time, from the financial reports of large technology companies, we also learned that hyperscalable cloud vendors are reducing their capital expenditures, which indicates that they believe that the demand for computing power will eventually reach a certain ceiling in the future.
Investors and traders have stated that we have reached a stage where AI must begin to generate profits on a large scale in order to prove that the construction efforts that have taken place so far, as well as those that will continue in the future, are justified.
Global X Artificial Intelligence and Technology ETF fell 4% this week, bringing their decline since October to 8%. This ETF has currently fallen 15% from its record high set in the summer, and is just one step away from a bear market. iShares Sem Token Issuance nductor ETF further fell into a bear market this week, dropping 29% from its recent high.
Doubts are deepening.
"You need to ensure that the returns are worth taking the risks," Cboe Global Markets, Senior Vice President JJ Kinahan, said to CNBC on Friday. "I believe the returns will come, but the initial investment is still very substantial."
Kinahan indicates that he believes that in the past few years, this wave of AI enthusiasm has been "under question."
On Friday, tech stocks related to AI were sold off in multiple sectors. Intel's shares fell 25% due to lukewarm revenue guidance, Micron's shares dropped by 5.5%, and NVIDIA's shares fell by 4%.
Even the largest cloud service providers have suffered significant setbacks, with Amazon falling by 2% and Google dropping another 1%. On Thursday, after announcing a decline in core advertising revenue, Google recorded its worst trading day ever.
Like traders, technology investors were also pessimistic about the trading of AI on Friday.
YieldMax Strategist Mike Khouw said, "I'm a bit worried about this transaction. I think we will still see some volatility for a while to come."
Therefore, option experts say that they are seeing more and more people buying downside protection.
The Chief Investment Officer and Co-Founder of Millbank Dartmoor Portsmouth, Dennis Davitt, said: "Historically, the bullish skew of tech stocks has been more pronounced. Therefore, people are more inclined to buy call options for gains rather than put options for protection against declines. I have seen this situation reverse over the past three days."
Davitt also pointed out that the options market is sending another interesting signal: although investors may be starting to shy away from large technology companies that are generally related to AI transactions, they may also have more confidence in the commercial prospects of AI technology itself, especially new types of successful consumer-grade intelligents such as Muse from Meta.
He said, "I believe that the ChatGPT in the world, as well as other AI algorithms, are actually taking over some business from Amazon and Google. Look at the Muse of Facebook — if you observe the option pricing of Muse, the market fears that are factored into Meta are less than those regarding Amazon."
The weak basic advertising sales announced this week by Alphabet may bring a glimmer of comfort to the long-term confidence of AI. The stock fell by more than 10% after its financial report was released on Wednesday.
A Google executive, Philipp Schindler, mentioned that the usage of the company's AI Mode is on the rise, although the current monetization capability is still relatively low.
On Wednesday, he stated: "It is noteworthy that the strong growth in AI Mode queries had an impact, as we observed lower levels of monetization in AI Mode."
However, the changes in usage volume and monetization methods may not have as significant an impact on the trading fate of AI as overall productivity and profits. All these capital expenditures need to generate profits, which in turn depend on the increased productivity resulting from the use of AI by the enterprise.
In the past few weeks, top investors have sounded rather pessimistic in their macro-level reflections on this matter, although no one is particularly sure about the exact timing.
Tudor Investment Corporation founder Paul Tudor Jones stated earlier this month: “Perhaps the market will continue to push off problems.” He is considering the possibility of a “critical point” and said there is a 60% to 40% chance that “we are on that path.”
He added, "The proportion of [ AI - related issuance in GDP ] is 50% higher than that of railways, three times that of highways, and also higher than that of other large-scale infrastructure projects in history such as telecommunications. Therefore, the competition between AI construction and sovereign debt may bring us to that critical point."
BTIG Technical Analyst Jonathan Krinsky suggested reducing holdings of chip stocks on rallies earlier this month and compared the SOX semiconductor index with several major downturn periods in its history.
On Friday, investors pulled out of the tech sector, and stocks such as Coca-Cola, Walmart, and Eli Lilly all rose by more than 1%.
