AI Investors Want More Making It and Less Faking It

The Nvidia booth at the GTC conference with a large "NVIDIA" logo, screens displaying content, and a crowd of attendees.

chips. This sort of circular deal had led to a nice bump in all the stocks involved in the past—but on Wednesday, nada.

Second, Nvidia’s better-than-expected results were hailed by many investors and commentators as proof that there isn’t an AI bubble, and the stock jumped more than 5% on Thursday morning, while smaller AI-related stocks soared. It only took until that afternoon for people to realize that the argument was daft. Sure, Nvidia is selling a lot of chips—but that’s an essential part of the infrastructure spending in the faking it stage, and if there’s a bubble, this is exactly what you should expect. The stock closed down, with a huge price swing not seen since the April tariff selloff.

None of this is helped by the parallel selloff in stocks popular with individual traders, many of whom are being hammered by losses on crypto, or by fading hopes of a December rate cut from the Federal Reserve. Trader psychology flipped on Thursday from buy-the-dip to sell-the-rip, which is unpleasant for markets, especially as upward momentum turns downward.

But the core of the AI debate is whether all the spending on chips and research will eventually lead to big enough profits to justify the huge outlays.

Markets are in the process of shifting from treating the answer as an obvious Yes to being slightly more cautious. There’s no sign that they’ve concluded the answer is No: Nvidia shares are still up a third this year, Microsoft 14% and crypto-to-cloud stock CoreWeave almost 80% from its March IPO. The S&P 500 is down only 4.6% from its intraday high last month, hardly an unusual move.

Rather, there’s a shift in the timeline. Investors are less keen on spending heavily now in the hope that in the distant future we get properly intelligent machines able to outperform humans. They are more keen on finding ways to make money from AI in the near term. This is one reason Alphabet, which has concentrated on corporate sales of existing products, has been virtually immune to the selloff.

Investors want a bit less faking it and a bit more making it. That’s bad news for those focused on grand hopes for the far-distant future, like Meta Platforms or OpenAI, and those selling them data centers. But, so far at least, it’s not the AI bubble popping.

Write to James Mackintosh at james.mackintosh@wsj.com

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