Viewpoint: The sharp decline in AI stocks is due to the confusion between prospects and returns

David Allen, head of long-short strategy at Plato Investment Management, stated that the root cause of Thursday's market sell-off lies in investors conflating the transformative potential of artificial intelligence with whether related investments can yield returns. The Nasdaq 100 index plummeted as investors sold off U.S. tech stocks, driven by market speculation that Congressional Democrats would strengthen regulations on the AI industry.

Allen noted that there has been a survival competition among large hyperscale cloud service providers, and the results of the midterm elections effectively provided a trigger for the significant market decline. Vihari Ross, portfolio manager at Antipodes Partners, mentioned that this round of sell-off reflects not so much structural issues within AI companies, but rather that the market is beginning to reassess the realistic conditions for related investments in the next phase.

Ross stated that achieving goals requires massive debt investment, and the cost of capital and interest rates are crucial. Additionally, it depends on whether sufficient power supply can be secured and whether market demand can be maintained at current levels. She also remarked that assuming all companies can achieve perfect results may not be a wise approach.