Sometimes AI hallucinates. That is, it can confidently give a wrong, and even completely made-up, answer.
Yesterday's explosive boom in Nvidia and AI-associated sectors, however, was no hallucination — at least on the surface. We've talked about how Nvidia's shares are skyrocketing (so much, in fact, that I'm running out of words to describe its stratospheric rise). Here are some quick statistics on how Nvidia's movement has reverberated throughout the broader market:
- The S&P 500 technology sector rose 4.45%, its highest one-day gain since Nov. 30.
- The VanEck Semiconductor ETF popped 8.6% to close at its highest level of the year; it briefly touched a 52-week high during the trading day.
- Microsoft rallied 3.85% and Alphabet rose 2.2% — both tech giants are frontrunners in AI.
With those impressive numbers, it's no surprise the tech-heavy Nasdaq popped 1.71%, while the broader S&P climbed 0.88%.
"Innovation in technology can outweigh the headwinds of a slowing economy," said Dylan Kremer, co-chief investment officer of Certuity, a wealth management firm. "Growth stocks are not dead."
But not everyone shares Kremer's optimism. Peter Boockvar, chief investment officer at Bleakley Advisory Group, pointed out that the rising tide in tech isn't lifting all sectors. Indeed, the Dow dipped 0.11%, closing below its 200-day moving average — a sign that it might continue dropping. The Russell 2000 Index, which tracks 2,000 small-cap companies, fell 0.7%.
Neither can tech and AI save a flagging economy.
"There are some serious holes in the economy that we can't ignore here," Boockvar said. "If the AI craze cools, people will see that the underlying business trends of Microsoft, Google and Amazon are clearly slowing because we all breathe the same economic air."
Still, there's no denying AI will "change the economy over the course of the next three to six years," according to Steve Blitz, chief U.S. economist at TS Lombard.
"AI is real," as Blitz said. The question is whether the optimism that AI's inspiring among investors is hallucinatory.
