What is Happening in the Stock Market?

If you keep up with the financial markets, there’s no chance that you haven’t heard the speculations. If you don’t, then let me clue you in – there might be an AI bubble. The companies which dominate the stock market, the most valuable companies in the world, might be a facade. Why do we think this?

Part of the world’s reservations about current AI companies is that investors are still scarred by the 2001 dot com bubble burst. Much like AI nowadays, online companies were considered cutting edge, inevitable, and the future –  so investors rushed in. People swarmed to invest in online companies, but the amount of demand for stock in these companies  inflated the price far beyond what it should’ve been. As a result, when profits  were published and were realised  to be far below what the stock price reflected, shareholders turned around and sprinted out of most online companies.

Online companies took over the world regardless, but it was the smart companies with sustainable business models who avoided the burst (like Amazon and Ebay) and lived to fulfill what was expected of them. What is scaring a  lot of investors, is the parallels between dot com companies before the crash, and AI companies right now. The key flaws with the early dot com companies was that they didn’t have enough profit in their products, sometimes giving things away for free just to stir up attention. Nowadays, think about all the AI which has a free to use version (ChatGPT, Deepseek, Sora, ect.) and think about what percentage of users bother to pay for the premium version. Now you realise that the amount of profit currently in the AI sector isn’t as much as their market cap reflects.

Open AI – the company which kickstarted the age of artificial intelligence with the notorious ChatGPT – is a key example of what is making investors unsure. Far too many people use the free version of chatGPT for them to match their ambitious profit goals – going from 13 billion USD last year to 200 billion USD in 2030. In order for them to live up these goals (goals which investors expect them to meet) they need to drastically restructure their business model, create new and innovative ways of marketing AI, and do all this while trying to keep in the lead when it comes to actually having the best AI, a race fought by many extremely fierce competitors including the 5 richest companies in the world.

The volatility of tech stocks are already very prevalent, mainly because of how fast paced the industry is and how high the growth expectations are. Analyzing the trends in tech companies of the past month, particularly in the last week there is clear indication that investors are growing uneasy.

Something which I thought was peculiar about this phenomenon is that the companies in question are literally the largest, most powerful companies in the world, and therefore are managed by the most accomplished businessmen the world has to offer. Why haven’t they changed their strategies to become more profit driven? I believe that the reason why they aren’t capitalizing more on their products is because of how close the competition is in the market. If OpenAI decided that they were going to force everyone who uses ChatGPT to pay a subscription (removing the free version of it) then 95% of clients are left with a decision – should they start paying for ChatGPT or switch to another free system like Gemini. The thing preventing OpenAI from doing this is that the quality of services that ChatGPT provides is not sufficiently superior to that of Gemini – as a matter of fact when I am writing this Gemini ranked ahead of it in intelligence. It would require all of the big tech companies to come together and agree to remove free services from their websites which is highly unlikely and also grossly anti-consumer.

AI stocks are becoming  more volatile too. The tech giant Oracle’s stock prices dropped 16 percent after publishing their quarterly expenditures, which displayed that their AI spending was far higher than Wall Street had predicted. In addition to this, much lower revenue was being generated from cloud software, reigniting fears over an AI bubble. If the revenue generated by these companies doesn’t increase dramatically then the bubble will burst because their current valuations are based on the predictions that they will grow to a certain level. As this development with Oracle suggests, these predictions may be far too ambitious.

The seemingly unsinkable Microsoft had a similar drop of about 13 percent not long after releasing underperforming financial reports, but they also have a 2.8 billion dollar pending lawsuit to scare away investors with.

Much like dot com companies, AI is destined to take over the world. It is the manner in which that comes about which is uncertain. Will giant tech companies go under? What type of business model can work successfully with AI? Will anything happen at all or is it just speculation? None of these questions can be answered yet, but the potential for something seismic to happen in the stock market is undeniably present.