Volatility is often a hallmark of speculative markets. Nothing is more speculative these days than the Artificial Intelligence (AI) industry.
Until autumn this year, the sector enjoyed blanket bumper returns. Articulating the word “AI” is imperative in investor presentations, in company reports and in market engagements. The ultimate solution to higher productivity and profits? Always AI.
But a lengthy bull run, like a fun-filled party, always come to an end. Are investors enduring ‘AI fatigue’?
Judging from Oracle’s (ORCL) share price, it seems so.
Prices spiked in autumn when the company announces better-than-expected results from AI-related items. Its majority owner, Ellison, was briefly the world’s richest man. Then, the company went all-in on AI, building digital warehouses and signing massive deals with OpenAI worth $300 billion.
After scrutinising these deals, investors got cold feet. Oracle will need to invest billions that it doesn’t have. Debt and capital partners are critical to Oracle’s AI ambitions. But these things can get sticky. Blue Owl (OWL), for example, has pulled out in funding one of Oracle’s AI-focussed data centres.
Oracle’s share price has halved in just three months.
Is AI still a viable investment concept? For many, the answer is an unequivocal ‘yes’. Just look at Google (GOOG). Its generative Gemini has leapfrogged ChatGPT, to the point that OpenAI CEO Sam Altman issued a ‘Code Red’ notice on December 2 to its employees.
AI’s advancement will not stop. But whether investors will be able to profit from it as easily as before is altogether a different matter.
During a speculative phase, some risk management rules must be instituted, so that investors walk away with some profits.
The bottom line is this. After a multi-year bull run, many investors are holding many AI stocks. This suggests some market saturation. A corrective wave is good as it erases the overbought market sentiment and identifies those AI companies that may prosper in the next expansion phase.
