AI paradigm shift unfolds

In a series of recent developments, the technology sector has been experiencing a turbulent period, with several key players experiencing significant drops in their stock prices. The downfall of AI, a topic that has been a subject of debate among its biggest critics, is not expected to happen overnight, but rather a gradual process, according to some analysts.

Rob Haworth, senior investment strategy director at US Bank Asset Management Group, suggests that the tech pullback might be a pause for investors to reposition their tech dollars. This sentiment is echoed by Sam Altman, the CEO of OpenAI, who has been using the word "bubble" in media interviews.

The narrative surrounding AI, according to tech writer and podcast host Ed Zitron, is spiraling out of control. Zitron argues that the only way to fix it is by showing actual returns, which none of the companies have demonstrated so far. This sentiment is further supported by a report published by researchers at MIT, showing that 95% of the generative AI programs launched by companies failed to generate more revenue.

Some of the tech stocks that have tumbled this week include Nvidia (NVDA), Microsoft (MSFT), and Palantir (PLTR). In addition, Coreweave, a cloud computing company, has shed nearly 40% of its value in just over a week.

The AI bubble bursting, according to Zitron, would be a series of sentiment shifts against technology. Wall Street is currently weighing various factors, including tariffs, mixed retail earnings, and the president of the United States' campaign to install loyalists at the Federal Reserve, in their decision-making process.

Meta, the social media giant, has instituted a hiring freeze and is reportedly looking at downsizing its AI division. This move comes as traders are rushing to buy "disaster puts" - options that act as a kind of insurance for when the market drops, in case of a potential nosedive. Investors, according to Bloomberg, are not just preparing for a pullback, but bracing for a nosedive, further fuelling the concern.

Anthropic and OpenAI, two prominent AI companies, have struck deals to give their products to the US government for next to nothing, despite burning through cash and lacking demonstrable paths to profitability. This move, while aimed at securing government contracts, has raised concerns about the long-term viability of these companies.

The speech by Fed Chair Jay Powell added more attention to the central bank drama, further contributing to the market uncertainty. As the tech sector navigates through these challenging times, it remains to be seen how the AI landscape will evolve and what the future holds for these companies.