It has been a bumpy ride for AI and tech stocks this week. AI shares bounced back today. That was after suffering a huge loss yesterday that wiped out more than $2 trillion in value. Big Democratic victories have raised big fears about the outlook for AI, which, of course, is a game-changing technology, and tech companies are pouring a ton of money into developing it. It's not clear, though, if we are in the middle of a tech bubble that is about to burst.
Let's bring in NPR senior economics and finance editor Rafael Nam and NPR tech correspondent John Ruwitch. Hey to the both of you.
Rafael, you start. AI shares did recover today. Let's underscore that. But investors are still feeling queasy.
Yeah, I think the scale of the losses yesterday was pretty staggering. And another kind you see - the kind you only see every once in a while, to be honest. And investors are still a little shaken. I mean, traders had already been feeling very uneasy all year long about the AI trade, and there's a lot of money riding on AI.
And a lot of concerns about whether all of this is going to pay off. And data centers are critical to AI companies, so when you have a wave of Democrats being elected talking about things like creating moratoriums or slowing down the development of data centers, investors can freak out.
John, dig into that, if you would. Explain the freakout.
Yeah. So there has been this boom in construction in AI data centers. There's trillions of dollars committed to more of them, but people are nervous about them - about the water and electricity costs, about what it means for jobs. I mean, just last night, I was at a town hall in San Jose, California. This is the heart of Silicon Valley, like, home turf for AI. And there are plans for as many as 13 new data centers there. Residents like Justin Brown say things are just moving way too fast.
Like, let's actually have a debate, and let's talk about this and see if there's some sort of common ground so the residents can get something out of this.
Yeah. And, of course, data centers were on the ballot nationwide on Tuesday, right? We saw candidates elected in places like Texas, Ohio, South Carolina, who've spoken out against data centers. There were also dozens of local measures across 13 states that blocked or restricted future data center development. So clearly, a consequential issue for a lot of people.
So just to connect the dots super explicitly, why all these votes against data centers are making investors so nervous?
Yeah, the election outcome, in a nutshell, suggests that it's going to be harder going forward for AI companies to build data centers, and that's a problem for these companies. Here's why. They've been investing eye-watering amounts of money in the computing power to train new AI models and to make AI work. That means data centers full of high-end chips. There's a shortage of that computing power already, and if leading AI companies don't build more data centers, then their plans to build better AI, their business plans, get gummed up.
And let me break in here, John, 'cause you and I have been talking about this, right? But this is exactly what investors are worried about. If AI companies can't develop AI models as fast as they want to, that means they may not see the profits they are promising markets. So investors start thinking, wait, hang on here. What does it mean for me? How soon am I going to make my money here?
Exactly. And so much of the stock market now is riding on this, and it actually could become a bigger deal than that, even. Today, AI is just a huge part of the whole U.S. economy. Here's Libby Cantrill, head of public policy at the investment management company PIMCO.
The U.S. economy is an AI economy. So if you - the AI story starts to wobble, you just think, from a macro perspective, that could be a headwind for U.S. economic growth.
The U.S. economy is an AI economy. So I mean, Rafael, what happens then if there is more than a wobble?
Yeah, that's the big concern in Wall Street right now. Listen, just about everybody believes there's bound to be some pain in developing AI, like there is for many new technologies. There was the dot-com bust at the start of the internet, for example. But AI companies are not only raising massive amounts of debt, a lot of them are also investing in each other and doing business with each other.
So an example - take Nvidia, the big chip company. Nvidia has also invested some money in startups like OpenAI and Anthropic, and those two startups, in turn, are buying massive amounts of chips from Nvidia. Now, this circular arrangement works fine when things are going well. But imagine what could happen if one company gets into serious trouble, and that's where it can set off a chain reaction that investors fear could spark a global financial crisis, like the one we saw in 2007.
Yeah, and there's this kind of interesting contradiction baked into the promise of AI, also. You know, we know it's powerful, but we still don't know exactly the best ways to use it. I mean, these companies are all placing huge bets on the idea that some of the best-use cases will be things that we can't imagine today, like, that AI will help us in ways that we didn't know were possible. And that's just a gamble. It might take years for breakthrough applications to appear and to make money. It might never happen, and the possibility of a data center slowdown just complicates that picture.
So to both of you - Rafael, you first - what can investors expect going forward?
Yeah, at the end of the day, we just don't know what will happen. Voters have spoken, but we need to see what elected officials will actually do. One big thing to watch though will be the upcoming IPO by Anthropic, that big, huge - that huge startup I was mentioning.
Yeah, I agree. We should note that Anthropic is a financial supporter of NPR. Its IPO, expected this month, will be a key test for the sort of health of the AI trade, right? The price that those shares sell at on Day 1 and after could tell us a lot about investor appetite for companies in AI.
Yeah, so, John, we'll see what happens. And maybe to end this on a more positive note here, so we don't end up depressing everybody, a lot of experts we talk to do say the economy and the markets may have become too dependent on AI. So if we see a bit of a pullback in data centers and in markets, it may be painful, but it could ultimately help rebalance things, and that's not a bad thing.
Going back to the dot-com bust I was mentioning earlier, it was painful, but it got rid of the weak companies like pets.com. It got rid of the financial froth. And today, really, you cannot imagine a life without the internet.
