This is the conclusion of today's Morning Brief, which you can read Log in Delivered to your inbox every morning, along with:
Imagine being enclosed in a bubble.
Depending on the conditions outside the bubble, the bubble would inflate or deflate every second.
This is the environment we could find ourselves in as investors take a closer look at the hot AI trade. Not every day will be an inflationary day for the bubble.
And make no mistake: Investors should scrutinize everything related to AI stocks based on a few bullet points in this week's bubble that deserve more attention than they've received.
“Obviously we've been living in a very hyped environment, and at some point this has to be more rational,” Antonio Neri, CEO of Hewlett Packard Enterprise (HPE) (video above), told me on Yahoo Finance Live.
Neri was just hours away from surprising some investors with a 14% year-over-year quarterly sales decline. (We thank him for still being there and answering the tough questions!). Its full-fiscal revenue forecast was cut despite HPE facing a billion-dollar AI backlog.
So what is there?
Neri tells me that companies are struggling to implement the AI technology they acquire – problems that range from the need to find new energy sources to securing the physical space to house the devices.
The other problem: persistent undersupply of powerful AI chips. No chips, no way to serve orders. Simple equation.
HPE shares fell 14% in after-hours trading on Thursday after reporting earnings. The comment and the quarter hour were like a punch in the stomach from Jean-Claude Van Damme.
But the stock rebounded after Neri made bullish comments to me about the margin outlook and HPE's completion of its acquisition of Juniper (JNPR) later this year or in early 2025.
Still, HPE gave investors new reasons to worry about the AI hype.
The story goes on
Likewise, PC maker HP Inc (HPQ) was hesitant to include strong demand for upcoming AI PCs in its current full-year forecasts. Find out more here in my chat with HP CEO Enrique Lores.
Meanwhile, Yahoo Finance trending ticker site favorite SoundHound AI (SOUN) suffered a nearly 20% decline on Friday. The company's profits fell short of estimates and, oh yeah, it lost a net $88 million last year.
“The Mag-7 is measured to be somewhat foamy, but not in a complete bubble. Valuations are a bit high given current and forecast earnings, sentiment is bullish but doesn't look excessive, and we don't see excessive leverage or.” “A flood of new and naive buyers,” billionaire hedge fund manager Ray Dalio warned in a new LinkedIn blog post.
“However, one could still imagine a significant correction to these names if generative AI fails to live up to the priced-in impact,” he continued.
Quote by Antonio Neri
There were some inflationary moments for the AI bubble this week too.
Shares of Dell (DELL) rose 26% as investors forgot that the company made personal computers and latched on to bullish AI comments during its earnings release.
AMD's (AMD) market cap broke $300 billion for the first time on AI hopes, capping another victory for CEO Lisa Su.
And shares of C3.ai (AI) rose 24% on Thursday after the company reported earnings the previous day. Tom Siebel, CEO of Tech OG and C3.ai, told Seana Smith, Brad Smith and you on Yahoo Finance Live that we are in the early days of the AI cycle.
This could be seen in C3.ai's sales to the government in the fourth quarter.
Anyway, another week of ups and downs in the AI bubble.
Brian Sozzi is Editor-in-Chief of Yahoo Finance. Follow Sozzi on Twitter/X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email [email protected].
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