Nvidia crossed yet another milestone yesterday, becoming the first ever $5 trillion firm. The tech company has seen its share price nearly double in just six months, having increased 12 times over in the last three years to bring its total worth to one-sixth the size of the US economy. At the peak of the dotcom bubble, Cisco never got beyond the 5% mark of that figure. This kind of all-in bet on just one sector of the American economy therefore has few precedents.

But this degree of concentration in the artificial intelligence ecosystem, which accounts for most of the current growth in the US economy, may be nearing a peak. Outside AI, it is becoming apparent that the economy is not in great shape, with many states already in recession, employment slowing sharply and confidence waning.

Even within the AI space, though, signs are emerging that investors are becoming impatient with the so-far unfulfilled promises of the tech giants. Yesterday, Alphabet and Meta also reported their earnings with investors rewarding the former but punishing the latter. What separated success from victory was that Alphabet, the parent company of Google, was able to report positive earnings, which shows that it is finding ways to monetise its AI. Meta, in contrast, called for yet more patience, saying that while its AI investments won’t pay out for another couple of years, the returns will justify the wait.

Investors didn’t buy it. When markets opened today, Meta’s share price fell by over 12%. Alphabet’s, in contrast, rose slightly. Massive sums of money are being ploughed into AI capital expenditure and, though we keep hearing we’re right on the cusp of a dramatic breakthrough, investors are clearly starting to demand more than promises.

We may therefore be nearing an inflection point, during which the unbridled enthusiasm for AI gives way to a more sceptical examination of results. Nvidia itself will continue sailing along because, unlike the startups in the dotcom boom, it offers much more than hype. Since it produces the chips going into the data centres other companies are building, it’s generating profits at a significant rate, making it not a speculative play but the real deal.

Still, what’s going on at companies like Meta could eventually affect Nvidia’s buoyancy too. It needs those firms building the data centres and developing the AI models to show that the technology is as transformative as the label promises. We may be entering a winnowing period when some companies begin to falter and others pick up their slack, becoming even bigger and richer. There may be some more Alphabets, which are handed more capital from investors because they’re delivering the goods, enabling Nvidia to keep rolling along.

But if the AI revolution fails to produce a transformative technology that yields real money, investors may lose faith. And if that happens and the investment boom slows, Nvidia will find enthusiasm for its products waning.

It didn’t help matters that when the Federal Reserve cut interest rates yesterday, as was widely expected, the central bank indicated that it might not introduce further cuts at its December meetings. That came as a surprise. Investors in AI have been able to be more patient than usual, given their access to cheap credit. If money becomes harder to find in the future, they will become more cautious in the way they deploy it.

When markets opened this morning, Nvidia’s share price fell by 2%. It may be a sign of things to come.

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John Rapley is an author and academic who divides his time between London, Johannesburg and Ottawa. His books include Why Empires Fall: Rome, America and the Future of the West (with Peter Heather, Penguin, 2023) and Twilight of the Money Gods: Economics as a Religion (Simon & Schuster, 2017).

jarapley

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