Investors are rushing into artificial intelligence trading again, but those looking for quick returns should think twice.
Nvidia (NVDA) shares hit an all-time intraday high this week, ahead of the 10-for-1 stock split after the close on Friday, while new product announcements boost demand for stocks like AMD (AMD), c3.AI (AI), have sparked. and Super Micro (SMCI).
Despite the continued excitement on Wall Street surrounding the new technology, a reality check may be necessary. I spoke with top business leaders at the Bank of America global technology conference earlier this week, who warned against impractical expectations.
Nutanix (NTNX) CEO Rajiv Ramaswami told me that while he is excited about the revolutionary technology, “AI investments have gotten ahead of reality.”
“There must be a valid business case… to justify the costs of AI investments. There is a small gap between the two at the moment,” Ramaswami said.
While there are a range of applications for AI – from text and video generation to supply chain demand forecasting – many tech companies have yet to see a tangible return on their AI investments. Meanwhile, developing AI applications, which require a lot of computing power, is expensive.
“There are good use cases. I’m not suggesting there aren’t good use cases. … We just have to ensure that they are economically viable,” Ramaswami added.
Meanwhile, Pure Storage (PSTG) founder John Colgrove advised that it is important to maintain a realistic timeline for AI’s expected impact on real life. He warns that short-term expectations are “overhyped.”
“AI will be transformative, but it will take a little longer than people think. What they think will happen in the next decade will probably take 25 years,” Colgrove said.
“It will happen, but it will take a little longer to build out the infrastructure and really achieve the effects everywhere.”
On the startup front, excitement has already dampened. After soaring for several quarters in a row, the value of VC deals for pre- and seed-stage AI startups is starting to decline.
Deal values totaled $122.9 million in the first quarter, down 76% from a peak in the third quarter of 2023, according to the latest data from PitchBook.
The driving factors are questions surrounding profitability.
For investors trying to ride out the AI hype, there are still reasons to increase exposure, even with the expectation of a “delayed effect,” according to State Street’s Michael Arone.
Arone told Yahoo Finance that investing in the companies that are “laying the foundation for mass adoption” is the best way to play AI. The companies behind data centers, GPUs, software and cloud services provide the essential tools that power the AI revolution.
“We really need to move from AI capabilities to the practical implications of AI. … And while there will be a ‘lag effect’ for companies that integrate AI technology into their products, the early builders of the infrastructure and foundation are the winners,” Arone advised.
“The winners and losers will become clearer as we move forward,” he added.
Will Nvidia’s winning ways continue? Veteran market strategist Steve Sosnick shares his perspective in the latest ‘Opening Bid’ podcast. Listen in below.
Seana Smith is an anchor at Yahoo Finance. Follow Smit on Twitter @SeanaNSsmith. Tips about deals, mergers, activist situations or something else? Email seanasmith@yahooinc.com.
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