AI Euphoria Disappears From Public Market

What happened to all that AI euphoria we were hearing about for much of the past year? A big sell-off in enterprise software stocks this week dragged down names from Microsoft to Salesforce to Adobe. It demonstrated just how jittery investors are about the state of the software market. That makes sense: Executives at Salesforce, UIPath and other companies have acknowledged in recent days that businesses have turned hesitant about doing big software deals. They’re grappling both with macroeconomic uncertainty and very real questions about the effectiveness of AI-powered tools. Those questions would surely cause anyone to hesitate before pulling the trigger on long-term commitments.

So while enthusiasm for how AI will transform the world is surely lifting some startup valuations to absurd levels—see here, here and here—that’s not the case in the public markets. Even Nvidia’s 120% stock rise so far this year can be seen as more a fundamental response to its rocketing sales growth than the kind of irrational enthusiasm you sometimes see among investors (including in startup land). Indeed, on a multiple of forward sales, Nvidia is trading about where it was a year ago, and below where it was in early 2022, according to Koyfin. As for Microsoft, whose OpenAI partnership put it at the leading edge of what’s developing in AI, its stock has only risen 10% so far this year. That arguably makes it an underperformer compared with Alphabet, Amazon or Meta Platforms, which doesn’t make a ton of sense.