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Has the day of reckoning finally arrived?\u00a0Wednesday\u2019s rout in tech stocks led by Tesla<\/a> and Google<\/a> parent Alphabet wiped a collective $1 trillion in value off U.S. equities, signaling a broad-based correction could be in store.\u00a0<\/p>\n Losses in the benchmark S&P 500 index and tech-heavy Nasdaq<\/a> Composite endured their worst days since the fourth quarter of 2022. <\/p>\n Chief among concerns is the fear that spending by the leading cloud computing companies, often called hyperscalers, to win the race in artificial intelligence may have gotten out of control.<\/p>\n \u201cInvestors realize that the payoff is going to take time to materialize and the hyperscalers\u2019 earnings are being hurt in the short term by how much they\u2019re spending on it,\u201d Alec Young, chief investment strategist at Mapsignals,\u00a0told<\/a> Bloomberg<\/em>.\u00a0<\/p>\n Going into earnings season, fund managers wanted to see some flesh on the bones of the AI euphoria. <\/p>\n Big Tech needed to demonstrate concrete examples of robust corporate profit growth to justify the\u00a0recent multiple expansion<\/a>\u00a0that has\u00a0stretched valuations<\/a>\u00a0to their breaking point.\u00a0<\/p>\n Even as bulls like Wedbush Securities analyst Dan Ives have argued the AI party is only just beginning, Nicholas Colas of DataTrek Research told\u00a0Investors Business Daily<\/em>\u00a0in a July 12th article that expectations had run well ahead of reality. <\/p>\n Two days later, a would-be assassin narrowly missed killing Republican nominee Donald Trump at a rally, spooking markets.<\/p>\n \u201cCurrent valuations imply earnings will double, and in some cases double again, at U.S. Big Tech companies,\u201d he\u00a0said<\/a>, arguing companies like Tesla were trading more on faith than fundamentals.<\/p>\n Take Tesla, a company trying to rebrand itself as a leader in AI and robotics rather than an EV manufacturer, as a prime example.<\/p>\n It notched its biggest one-day drop since September 2020, plunging 12% after CEO Elon Musk revealed the EV inventory liquidation that drove\u00a0stronger-than-expected<\/a>\u00a0Q2<\/a> delivery figures came at the\u00a0direct expense of margins<\/a>.\u00a0<\/p>\n Normally this wouldn\u2019t faze bulls given Tesla\u2019s $800 billion market cap rested predominantly on products and services still in their prototype development, such as its Optimus droid and Full Self-Driving software stack.\u00a0<\/p>\n But the August 8th robotaxi event, exp<\/span>ected to provide clear signposts, was\u00a0postponed, with Musk informing investors they will have to wait until October 10th for clarity. <\/p>\n Meanwhile, the Tesla CEO failed to provide evidence a combination of\u00a0FSD price cuts\u00a0and free trials was translating to higher take rates. <\/p>\n When pressed about when his cars would finally be able to drive themselves without supervision, he resorted once more to dangling vague, noncommittal predictions that he could need another year.<\/p>\n For investors, the lack of a roadmap combined with steadily deteriorating fundamentals was too much to justify the enormous rally in the stock over this past month. <\/p>\n Even after yesterday\u2019s losses, it is still up 9% since the start of July.<\/p>\n Meanwhile, Alphabet also said capital expenditures, mainly for new data center infrastructure, had hit $13 billion, up from $12 billion in the previous quarter. Moreover, spending on its robotaxi business would also increase. On Tuesday, Waymo co-CEO Tekedra Mawakana said her parent pledged to inject\u00a0up to $5 billion<\/a>\u00a0to extend its runway.\u00a0<\/p>\n And if investors thought Microsoft<\/a> affiliate OpenAI was poised to look any better,\u00a0The Information<\/em>\u00a0reports that losses at the company behind ChatGPT could\u00a0soar to as much as $5 billion<\/a>\u00a0this year alone. <\/p>\n Worse, without further financing from investors it might run out of funds in twelve months time.\u00a0The company could not be reached by Fortune<\/em> for a comment.<\/p>\n After weeks of repeated record highs, investors now appear to be taking money off the table and cashing in their chips especially after a turbulent fortnight during President Joe Biden dropped out of the race shortly after the attempt on Trump\u2019s life.<\/p>\n Billionaire investor Ray Dalio, who made his fortune correctly predicting tectonic shifts in the global economy and geopolitical stage, emphasized the\u00a0rising risks<\/a>\u00a0of a major conflagration on U.S. soil, especially should Kamala Harris win on election day.<\/p>\n \u201cIt is probable that we will see some form of civil war,\u201d the founder of hedge fund Bridgewater\u00a0wrote<\/a>\u00a0on Tuesday. \u201cBy the way, the markets are increasingly reflecting this shift.\u201d\u00a0<\/p>\n<\/div>\n\nIs the AI bubble bursting?<\/h2>\n
OpenAI reportedly twelve months away from running out of money<\/h2>\n