The AI frenzy shakes the stock market – billion rollover worries

What do Meta, Google owner Alphabet, Amazon and Intel have in common besides being big dragons in the tech sector? Well, the fact that they all had a hard time on the stock market since their last quarterly reports did not fall on the investors' lips.

And they are far from the only gloomy twigs. The technology-heavy Nasdaq composite index lost nearly 3 percent on Friday in its worst trading day since June.

A clear factor in this context is that the market's expectations of tech and AI companies have changed in a short time, points out Maria Landeborn.

- A few years ago, it was thought that the bigger the investments these big American companies made, the more positively it was perceived. But that is no longer the case.

- Now the market has started to question more and more whether the profitability will be high enough in the future.

She also points out that several of the companies, in parallel with growing capital expenditures for data centers and other infrastructure, are seeing declining revenues in areas where they have traditionally been strong. One example is Alphabet, whose latest report showed record investment costs while ad revenue fell short of expectations.

Another aspect, Landeborn emphasizes, is that interest rates are ticking upwards. The US Federal Reserve and other central banks have signaled that more policy rate hikes are on the way, which means higher borrowing costs for companies.

- It will of course be extra tough for companies that are highly indebted, that have weak profitability or that are dependent on the capital market to bring in more money to run their business.

Developments in the field of AI have led some to draw parallels to the so-called dotcom bubble around the turn of the millennium, which ended in a crash. Maria Landeborn emphasizes that an important difference is that the big players are now well-established and profitable.

- If you look back to the turn of the millennium, there were many companies then that were not profitable at all. It could be enough that you changed your name to something related to the Internet, or rewrote your vision, for you to make money on the Internet, and the stock price went up.

But regardless of the relevance of the historical parallel, there is a goal that today's actors must fulfill, emphasizes Maria Landeborn:

- In the end, it will be important that the companies that build data centers can also charge their customers.