Artificial intelligence (AI) stocks, which were among the best performers earlier this year, have seen a sharp decline in recent weeks. Some of the leading AI companies, such as Nvidia, C3.ai, and AMD, have lost more than 10% of their value since reaching their peaks. The reason behind this slump may be explained by Amara’s Law, which states that we tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.
AI Hype Fades as Reality Sets In
AI has been one of the most hyped technologies of the 21st century, with promises of transforming various industries and sectors, such as healthcare, education, entertainment, and finance. AI companies have attracted huge amounts of investment and attention from both public and private markets, as well as from governments and regulators. AI has also become a buzzword that many executives use to impress investors and analysts during earnings calls.
However, as time goes by, the hype around AI may be fading, as investors realize that the technology is not as easy or profitable as they initially thought. AI is still a complex and evolving field, with many technical and ethical challenges and uncertainties. AI applications require large amounts of data, computing power, and human expertise, which are not always available or affordable. AI also faces competition from other technologies, such as cloud computing, blockchain, and quantum computing.
Moreover, AI may not be able to deliver on its lofty expectations in the short term, as it takes time for the technology to mature and scale. According to Amara’s Law, we tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run. This means that we may be disappointed by the initial results of AI, but surprised by its eventual impact. This could explain why some of the hottest AI stocks have entered correction territory, which is when shares fall 10% from a recent peak.
AI Stocks Performance and Outlook
Insider looked at 10 of the hottest AI stocks from earlier this year and analyzed how they have performed since peaking. The table below shows the peak date, peak price, closing price on August 9, 2023, and percentage change for each stock.
| Company | Peak Date | Peak Price | Closing Price on Aug 9 | Percentage Change |
|---|---|---|---|---|
| Nvidia | June 2 | $721.76 | $618.83 | -14.3% |
| C3.ai | May 7 | $79.29 | $56.02 | -29.4% |
| AMD | July 6 | $95.03 | $85.04 | -10.5% |
| Palantir | Jan 27 | $45.00 | $23.95 | -46.8% |
| Snowflake | Dec 8, 2022 | $429.00 | $270.86 | -36.9% |
| UiPath | May 11 | $90.00 | $62.50 | -30.6% |
| Tesla | Jan 25 | $900.40 | $713.76 | -20.7% |
| Microsoft | July 26 | $289.67 | $284.82 | -1.7% |
| Amazon | July 13 | $3,773.08 | $3,319.04 | -12% |
| July 28 | $2,723.54 | $2,671.14 | -1.9% |
As the table shows, five of the 10 stocks have lost more than 10%, while three have lost more than 20%. Only two stocks have lost less than 2%. The average percentage change for the 10 stocks is -19%.
The outlook for AI stocks may depend on several factors, such as:
- The pace and timing of the Federal Reserve’s tapering of its bond-buying program, which could affect interest rates and market sentiment.
- The growth and profitability of the AI companies, which could vary depending on their business models, competitive advantages, and innovation capabilities.
- The demand and adoption of AI products and services, which could depend on customer preferences, regulatory environments, and social impacts.
- The emergence and development of new technologies or trends that could complement or challenge AI.
AI Still Has Long-Term Potential
Despite the recent slump in AI stocks, it is important to remember that AI still has a lot of potential in the long term. According to a report by PwC, AI could contribute up to $15.7 trillion to the global economy by 2030, representing a 14% increase in global GDP. According to another report by Gartner, global spending on AI is expected to reach $97 billion by 2023, up from $37 billion in 2019.
AI is also expected to have a positive impact on various aspects of human life, such as health, education, entertainment, and security. AI could help improve diagnosis and treatment of diseases, enhance learning and creativity, create new forms of art and entertainment, and protect people and the environment. AI could also enable new forms of collaboration and communication, such as natural language processing, computer vision, and speech recognition.
AI is not a fad or a bubble, but a powerful and evolving technology that could change the world in the coming years. However, as Amara’s Law suggests, we should be realistic and patient about its short-term effects and optimistic and curious about its long-term effects. AI stocks may be slumping now, but they could soar in the future.
