Shares of artificial intelligence (AI)-related companies took a beating globally on Monday as doubts arose over their prospects following a sharp rally that lasted for months.
In South Korea, for instance, where chip-makers dominate the market, the broader Kospi index fell more than 8%; its slide was led by Samsung Electronics and SK Hynix. In Europe, BE Semiconductor Industries fell 4.5% and ASML more than 3%. These followed a drop in American AI stocks last week. Other stocks were hit too, with Asian and European price-tracking bands awash in red.
One explanation was investor unease caused by strong US payroll data that makes a policy rate hike by the US Federal Reserve more likely, although an old link between a tight American labour market and inflation was weakening well before AI emerged.
While many stock watchers suspect that AI shares are over-inflated and thus vulnerable to a crash should this “bubble” burst, even the most eager short-sellers can’t be certain if that process has begun.
That’s part of the problem of investing in AI plays. Valuations based on earnings foreseen far ahead imply a big role played by guesswork. And that spells price volatility.