Alex Rankine Markets editor
Wall Street’s patience for the costly artificial intelligence (AI) arms race is waning, says Dealbook in The New York Times. Facebook-owner Meta recently reported its “best ever first-quarter earnings”, but that wasn’t enough to prevent a crushing sell-off of its shares (see also page 6). Plans to devote a massive $35bn-$40bn this year to capital expenditure, much of it invested in AI projects, spooked investors.
The Meta sell-off was about boss Mark Zuckerberg as much as it was about AI, says James Mackintosh in The Wall Street Journal. Zuckerberg has a history of big spending on unproven ideas, not least on the Metaverse flop. By contrast, Microsoft and Google-owner Alphabet have been rewarded by investors for their lavish AI investment plans because both have a clearer path to turning the technology into higher profit margins. In an era of high bond yields (see below), investors are no longer willing to fund speculative “moonshots” that vaguely promise profits at some distant future date.
The “magnificent seven” tech giants – Nvidia, Meta, Apple, Tesla, Amazon, Alphabet and Microsoft – have grown so enormous that “you could fit several European stockmarkets inside any one of them”, says Katie Martin in the Financial Times. That leaves the health of the entire market increasingly dependent on a narrow group of corporate results. While the “excitement around AI-flavoured stocks” is not over, valuations are a concern. After all, even if AI does transform the world, the “ultimate beneficiaries” of the technology might pop up in neglected, unexpected places such as healthcare or banking.
US stocks are historically expensive, says Buttonwood in The Economist. Their cyclically adjusted price-to-earnings (Cape) ratio, a popular valuation metric that smooths out performance over the e
