AI Skepticism Among Top Reasons for This Week’s Global Stock Market Drops

Most every global marketplace is down and while the reasons are myriad, the fear that tech companies are trotting out unfinished, unimpressive AI has led some investors to feel as though another bubble is forming.

The global market downturn reflects a fear of a recession in the US, fed by a which is related to but not necessarily the same as concern over a ho-hum job market report.

The worldwide market downturn is best highlighted by some particularly rough two days in Japan. Monday, it suffered its largest-ever single day trading — down 12% — which follows a 5.8% drop on Friday, CNN reports. Most analysts believe the main reason for the large collapse is a drop in confidence in the US job market, which didn’t post particularly good numbers. It’s a bit of a house of cards, as that led to a major sell-off in Japan, making this a self perpetuating problem.

The slowing jobs forecast in the United States wasn’t helped by weak earnings from big tech companies. According to Baron’s, AI development has fueled growth in the tech sector for the last two years and that enthusiasm is fading. Skeptics about the viability of AI are growing in number and some funds now believe that the promise of AI can’t deliver. Elliott Management, a hedge fund, tells Financial Times that AI is “overhyped with many applications not ready for prime time.”

Looking specifically at the imaging industry where AI has been focused heavily for the last couple of years, it’s hard to disagree with that take. While generative AI has improved dramatically since it was first rolled out, improvement since has been slow. It’s even slower from the perspective of the end consumer, who probably hasn’t seen a “good” use or implementation of AI yet. For example, in January, Samsung’s new Galaxy S24 smartphones made scant improvements to hardware and focused nearly entirely on AI features — features that didn’t impress. Computing has been driven by the ability to work with AI and NVIDIA’s massive valuation is powered by sales to companies building AI technology.

Speaking of NVIDIA, the company’s next earnings report comes out on August 28 and if it’s not impressive, investors will be further spooked.

All this said, companies are unlikely to waver — AI isn’t likely to follow the swift exit of other promising technologies of the past (like 3D TVs).

“The swift change in market mood regarding AI… looks premature, in our view,” writes Min Lan Tan, head of the Asia Pacific Investment Office at UBS Global Wealth, Baron’s reports. “It will likely take some time for companies to demonstrate that they can earn a return on their AI investments, but there are no indications that companies are backing away from these investment plans given the technology’s promise.”

Ironically, the other major concern driving down markets is poor US job performance. Ironic, because companies have been extremely fast to jump on underbaked AI technologies to replace human workers for the last couple of years — publishers, advertising agencies, and more have already shown this to be the case. Watching investors grapple with these two disparate goals is fascinating, as it shouldn’t be a surprise that job prospects are slowing while AI has been embraced.

Image credits: Header photo licensed via Depositphotos.