The hype surrounding the surge in demand for artificial intelligence products has driven technology stocks to new highs last year, but experts now say that the AI bubble is bursting.

Following a significant drop in the stock market on Monday (August 5), AI-related companies have been hit hard.

"The Big Seven" companies, including Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla, collectively lost over $650 billion in market value.

The Japanese benchmark index plummeted by 12%, marking the largest drop since 1987, while the Nasdaq Composite fell by 3.4% and the Dow Jones Industrial Average dropped by 2.6%.

This is what a major tech bubble burst looks like:
Silicon Valley's overhyped AI promises fail to materialize.
Nvidia's market value drops by $325 billion.
Apple's market value drops by $300 billion.
Google's market value drops by $200 billion.
Amazon's market value drops by $135 billion.
Microsoft's market value drops by $125 billion.
Meta's market value drops by $80 billion.
Tesla's market value drops by $60 billion.
- Ewan Morrison (@MrEwanMorrison) August 5, 2024

Another drop occurred on July 24, signaling the end of a period of significant growth in the technology and AI sectors.

Is it a natural adjustment or the bursting of a bubble? Experts have differing opinions.

While some argue that it is just an "adjustment" and there is no need to worry, others believe that the AI hype bubble is bursting.

According to Fortune magazine, Richard de Chazal, a stock researcher at William Blair, wrote in an analysis report on Friday, "Over the past year or so, the sustained outstanding performance of the 'Big Seven' has demonstrated the justification for their high valuations."

"However, now that the performance is only slightly disappointing, these large tech companies are being brought into the 'doghouse'."

The generative AI industry has attracted over $1 trillion in investment. A report by Goldman Sachs explores whether this massive amount of funding can bring returns. Portfolio manager Brook Dane said, "You will see both investment digestion and the reality of hype."

"They will play out over the next few years."

They also described the situation as a "leap of faith" and stated that AI companies need to demonstrate more results in the future.

"We really need to see these technologies applied in a more profound way than just coding and customer service chatbots in the next year to year and a half."

"If it ultimately only ends up being used for coding and customer service, then we have invested too much in this area..."