Investors are flocking to artificial intelligence trading again, but those hoping to make a quick profit should think twice.
Nvidia shares (NVDA) hit a new intraday high this week ahead of a 10-for-1 stock split after the close on Friday, while new product announcements boosted demand for stocks including AMD (AMD), c3.AI (AI) and Super Micro (SMCI).
Despite Wall Street's continued enthusiasm for new technology, a dose of reality may be in order. I spoke to top business leaders at Bank of America's Global Technology Conference earlier this week, and they warned about unrealistic expectations.
Nutanix (NTNX) CEO Rajiv Ramaswami said that while he's excited about the revolutionary technology, “investments in AI are ahead of reality.”
“You need a valid business case to justify the cost of AI investments, and right now there's a bit of a disconnect between the two,” Ramaswamy said.
Although AI has many uses, from text and video generation to supply chain demand forecasting, many technology companies have yet to see tangible benefits from their AI investments. Meanwhile, building AI applications requires powerful computing power and is costly.
“There are good use cases. I'm not saying there aren't good use cases. … We just need to make sure it's economically viable,” Ramaswamy added.
Meanwhile, Pure Storage (PSTG) founder John Colgrove advised keeping a realistic timeline on the expected impact of AI on real life, warning that expectations are “over-inflated” in the short term.
“AI is going to be transformative, but it's going to take a little longer than people think. What people think will happen in the next 10 years is probably going to take 25 years,” Colgrove said.
“It's going to happen, but it's going to take a little bit longer to build the infrastructure and actually make it effective everywhere.”
On the startup front, the excitement is already starting to die down: After several consecutive quarters of strong growth, VC deal value for pre-seed and seed-stage AI startups is starting to decline.
First-quarter deal value totaled $122.9 million, down 76% from the peak in Q3 2023, according to the latest data from Pitchbook.
The driving force is questions about profitability.
For investors trying to weather the hype around AI, there's still reason to invest more, even if there's a likely “delayed effect,” according to State Street's Michael Arone.
Arrone told Yahoo Finance that the best way to take advantage of AI is to invest in companies that “have built a foundation of massive adoption.” These companies, which stand behind data centers, GPUs, software and cloud services, are providing the key tools that will power the AI revolution.
“We need to move from the potential of AI to the actual impact of AI. … And while there will be 'delayed benefits' for companies that embed AI technologies into their products, the winners will be those that build the infrastructure and foundations early,” Arrone advised.
“The winners and losers will become clearer in the coming days,” he added.
Will Nvidia's winning streak continue? Veteran market strategist Steve Sosnick shares his views in the latest “Opening Bid” podcast. Listen below.
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Sheena Smith Anchor for Yahoo Finance. Follow Smith on Twitter translatorHave a tip on a deal, merger, activist situation or anything else? Email me at seanasmith@yahooinc.com.
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