PARIS, Feb 7 — Has the AI stock bubble popped? Tech stocks have been on a rollercoaster since the start of the year, as have equity markets, with fears growing that massive AI investments may never become profitable.

The Nasdaq Composite, the stock index that includes most of the major US tech stocks, has lost 2.5 per cent this week despite rebounding on Friday.

Several of the so-called Magnificent Seven tech stocks have reported earnings results, and while posting strong performances, companies such as Amazon, Alphabet and Microsoft spooked investors by announcing plans to invest stratospheric sums to ensure they have sufficient computing power for an expected rise in demand for artificial intelligence services.

Disruption 

Investors are also worried about the potential for AI to disrupt businesses.

Anthropic — which created the Claude chatbot — unveiled this week a model that could replace numerous software tools, including for legal work and data marketing.

This sent investors heading for the exits in firms that offer such services in the United States and Europe.

"Markets have begun to take into account the capability of AI to threaten business models, with considerable social costs" as well, said Cyrille Collet, head of Quantitative Equities Management at CPR Asset Management.

The concerns rippled to the wider tech market.

"Many investors preferred throwing out the baby with the bathwater," said Kevin Thozet, a member of the investment committee at asset manager Carmignac.

Doubts since autumn 

The disruption concerns added to growing worries about whether the massive sums that tech giants are investing in AI will ever become profitable.

This unease has deepened as tech giants have turned to debt markets to finance these investments, whereas previously they had used their own funds.

"This could increase risks for the entire system if one of them falters," said Thozet.

Bespoke investment group noted that 12 months ago, analysts expected Amazon, Google and Microsoft to plough US$244 billion into AI investments.

"Now ... that number is US$494 billion ... this is a positively staggering sum; it's no wonder markets are balking at the prospect of funding it," it said in a note to investors.

ING analyst Vincent Juvyns said investors are also starting to worry about physical constraints on growth in the AI sector.

"Will there be enough electricity for data centres or enough chips?" he wondered.

The Magnificent Seven account for just over a third of the market capitalisation of the S&P 500 companies.

Since the beginning of the year, they have tanked.

Microsoft's shares have slumped by 20 per cent. Shares in Amazon have fallen 15 percent and those in Google's parent company Alphabet have fallen 12 per cent.

Wariness 

Tech stocks are also feeling the effects of US President Donald Trump's policies, which are heightening geopolitical, monetary — the value of the dollar has slid in the past several months — and economic uncertainty.

Investors are looking for opportunities in other regions like Europe.

This trend was also observed at the start of 2025 and reached its peak when the Trump administration announced tariffs against Washington's trading partners.

Analysts at Edmond de Rothschild also noted "a sharp sector rotation" as investors moved funds out of technology stocks into shares in companies operating in other sectors.

This has helped bolster the wider stock market.

Beginning of a crash? 

ING analyst Juvyns called for keeping things in perspective.

Investors moving out of tech shares are "taking profits on stocks that have still gained a great deal".

Nancy Tengler at Laffer Tengler Investments noted that trading algorithms and hedge funds can accentuate market movements.

"The headlines are traded by machines and traders and the sell-offs can almost feel apocalyptic," she said.

More broadly, "the markets are shifting from 'everyone is going to win' to a more mixed landscape, where we realise there will be winners and losers" from AI, said analysts at Deutsche Bank. — AFP