Is AI 'one big bubble?' Behind the tech selloff

The tech-heavy Nasdaq stock index has lately been on a roller coaster. Chris Hondros/Getty Images/Hulton Archive hide caption

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A wave of selling in tech stocks is starting to reflect doubts over whether the spending boom on artificial intelligence is worth it.

The best-known AI-related tech stocks, Nvidia and Google-parent, Alphabet, were down for a second day in a row.

Among the biggest losers on Tuesday, however, was chip maker Micron Technology, whose shares plummeted 12%. These selloffs sent the tech-heavy Nasdaq index down around 2% on Tuesday afternoon.

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Micron's stock is the perfect representation of what's going on in the stock market. It has skyrocketed in value in the past year — up about 800% — on soaring demand for memory chips from the AI buildout, showcasing the massive valuations for AI-related stocks.

"The market just continues to oscillate between 'AI is going to be great and increase productivity and all these companies are going to win,' and 'AI is a big waste of time and it's not worth the return on investment at all and this is all one big bubble,'" said Gil Luria, head of technology research at investment firm D.A. Davidson.

Over $1 trillion spent. "Are we going to start to see returns?"

Spending on AI has been monumental. According to Stanford University's AI Index Report , there was more than $580 billion in corporate investment into AI in the past year across the globe, on top of over $1 trillion in the four preceding years.

These doubts have led to jitters in the stock market. On Monday, Alphabet stock fell 5%, and SpaceX dropped 16%.

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That nervousness spilled over into markets in Asia. Korean markets were the worst hit after stocks of Samsung and its competitor SK Hynix fell 12% apiece.

This comes at a moment when two of the largest AI companies, OpenAI and Anthropic, are considering selling their stocks to the market in what is shaping up to be two of the largest IPOs in history.

Both OpenAI and Anthropic are now generating revenue, but the long-term profitability of generative AI is an open question.

"The market is trying to kind of digest all this and saying, 'Are we going to start to see returns?'" said Mark Vena, CEO of SmartTech Research.

On Tuesday, it was a rout of chip maker stocks. Intel and Advanced Micro Devices were both off over 5%.

Micron took the biggest beating, however, mostly over nervousness ahead of the company's results expected on Wednesday. Analysts say they're watching Micron's earnings to look for signs that the AI investment cycle is continuing apace.