AI’s True Impact on Tech Stocks: What Investors Need to Know

Explore the real effects of AI on tech stocks, including the recent changes in the market, expectations of higher earnings, and the uncertain future of AI investments.

In the past, there was a big boom in artificial intelligence. Now, there isn’t one. Around $3 trillion in paper wealth was lost in the tech business in less than a month when stocks went down. It looks like thoughts and flows are more important than facts in this route. A harder reset is possible if that happens.

The market value of tech companies rose by $5 trillion in the first half of 2024. This was due to the 30% rise in the 416 stocks that make up the FR US Technology Index.

Tech was an easy place to sell when feelings got tense because of those handy gains. And they did, in large part because of political shocks, a change in Japanese interest rates, and rising unemployment in the U.S. Four times as much volatility was seen in the market between July 10 and August 5.

The way the market sees companies’ success hasn’t changed. Nvidia, which makes chips that AI giants use, has lost 15% of its market value since July 10, even though predictions of its earnings for next year have gone up. Others have seen the same thing. As of August 6, experts thought that the earnings of S&P 500 tech companies would rise 21% in 2025, which was more than the 19% rise they saw in April. The number of times those gains are worth to investors has gone down instead.

Strategists at Citigroup said in June that higher profit estimates only made up a third of the gains in AI-related stocks so far this year. The air is now being sucked out of tires that are too full.

But things still change. AI is controlled by businesses that put a lot of money into it with no guarantee of a return. Meta Platforms’ 22% rise in ad sales last quarter shows that the plan is working, but that’s still only a small part of the promised wealth. It costs a lot of money to get the rest of the way.

Capital Investments in AI: A Look Ahead

Eight of the biggest companies investing in AI will spend $380 billion on capital projects over the next two years, which is 50% more than they did over the last three. It’s great that Nvidia and other companies like it give them the tools. Mark Zuckerberg, CEO of Meta, says that the Llama 4 AI model may need 10 times as much computing power as the one it replaces.

The prize’s size is also up for grabs. Accenture thinks that AI could make the world economy grow by almost $18 trillion. McKinsey has found efficiency gains worth $4.4 trillion.

CEOs of both Meta and Alphabet agree that it’s better to spend too much too soon than not enough too late. That does leave room for change and more upsets.