Investors returning to rationality? Over half of the AI concept stocks that were highly sought after in the US stock market last year are falling this year

Last year, among the highly sought-after AI concept stocks, the majority have started to decline this year. Faced with increasingly cautious investors, listed companies may find it difficult to continue raising funds under the banner of AI.

This year, 60% of the stocks in the S&P 500 Index have seen an increase, but in Citigroup's AI stock index "AI Winners Basket," which is based on the most popular companies among the bank's clients last year, more than half of the stock prices have declined this year, with three-quarters of them rising in 2023.

Overseas AI-related funds have also encountered similar embarrassing experiences.

In BlackRock's robot and AI ETF, Schroders' AI and Next Generation Software Fund, and First Trust and Nasdaq's AI and Robotics ETF, more than half of the individual stocks have declined this year.

Stuart Kaiser, head of equity trading strategy at Citigroup, said that although AI is still a hot topic of interest and discussion, simply mentioning the word AI frequently is not enough to attract investors or market attention.

Mentioning "AI" 15 times is not enough.

He believes that companies need to prove how they benefit from AI through actual performance and evidence, and how they use AI to drive business growth or improve efficiency.

Future enterprises need to speak with solid evidence

As the recognized biggest "shovel seller" in AI, NVIDIA's stock price has surged by 180% this year, surpassing Apple and Microsoft this week to become the world's most valuable listed company.

As for Microsoft, which hit the mark with ChatGPT, its stock price has nearly doubled since 2023.

Due to strong AI demand, NVIDIA's total revenue in the first quarter surged by 260%, and profits skyrocketed by 6 times. Huang Renxun said that the strongest chip, Blackwell, will bring in a large amount of revenue this year, and new products will be launched every year in the future. Microsoft's first-quarter financial report also exceeded expectations across the board, with Azure cloud revenue accelerating by 31%.

Mona Mahajan, senior investment strategist at Edward Jones, said:

Investors are paying more attention to the earnings stories behind the name "AI." What sets companies like NVIDIA apart is that they have essentially achieved their goals and demonstrated real data.

In contrast, tech stocks like Salesforce, Snowflake, Intel, and Adobe, which saw significant increases in 2023, have seen significant declines. These companies have market capitalizations far smaller than giants like NVIDIA and Microsoft but are still considered large-cap stocks After disappointing first-quarter financial results, Salesforce suffered its worst single-day drop in twenty years.

Kaiser said:

In the tech sector, investors have high expectations during earnings season, and companies that fail to meet them will be severely punished.

How Much Bubble is Left in AI?

While some see this shift as a sign of rationality returning, Rob Arnott, chairman of asset management firm Research Affiliates, believes that AI stocks still exhibit "classic" bubble characteristics.

One thing about classic bubbles is that you will see smaller players gradually disappear before the big players start to suffer.

Arnott emphasized his belief in the long-term impact of AI but noted that "many benefits will gradually emerge, and the market is pricing in immediacy."

Furthermore, Citadel CEO Ken Griffin previously stated in a media interview that many companies claim to fully embrace AI technology, but in reality, they are not truly involved. He cautioned investors not to be blinded by valuations