Nvidia, Microsoft's AI Rally Hides Tech Sector's Underlying Weakness, Warn Experts: 'There's Not That Much Happening'

Author: Benzinga Neuro | September 09, 2024 04:24am

The technology sector, despite the buzz around artificial intelligence (AI), is experiencing a broad weakness, with many companies still struggling with the recession that started in 2022, according to investors and recent financial reports.

What Happened: AI-focused companies like Nvidia Corporation (NASDAQ:NVDA) and Microsoft Corporation (NASDAQ:MSFT) have seen significant increases in their share prices. However, analysts expressed that many tech firms not primarily focused on AI have struggled to recover, Financial Times reported on Monday.

“When you look at technology outside of AI, there’s not that much happening,” stated Tony Kim, head of technology investing at BlackRock’s fundamental equities division.

Traditional tech areas such as software, IT consulting, and electronic equipment production for sectors like manufacturing and the auto industry have faced challenges, including weak demand and the aftermath of overexpansion and overstocking during the COVID-19 pandemic.

Facebook co-founder and current Asana CEO, Dustin Moskovitz, recently described the situation as an “unwinding of the over-hiring and overspending” seen at the start of the pandemic. Recent financial reports reveal that a majority of large tech firms have been growing more slowly, while many smaller ones are actively shrinking.

See Also: Mark Cuban Explains Why, Despite Getting A Lot Of Flak From Elon Musk And Others, He Continues To Post On X: ‘Don’t Want to Be Where Everyone Agrees with Me’

Investor enthusiasm for AI-focused companies has waned since early summer, leading to predictions of a prolonged shift of investor attention from Big Tech stocks to sectors like financial services and industrials.

Why It Matters: The AI sector has been a hot topic in recent months. In August, some investors and analysts warned that the AI sector could be a bubble set to burst in the future. However, Goldman Sachs analysts stated in early September that despite the significant growth and investor interest in AI stocks, the sector is not in a speculative bubble, unlike previous technology booms such as the late 1990s internet bubble.

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This story was generated using Benzinga Neuro and edited by Pooja Rajkumari

Posted In: MSFT NVDA