Two risks to the AI tech rally By Investing.com

Yardeni Research analysts have raised concerns about the continued rise of AI technology, identifying two key risks that could hamper the sector’s massive growth.

While AI promises to revolutionize industries, there are signs of “AI hyperinflation” that warrant caution.

First, the unprecedented influx of money into AI startups is a warning sign. Yardeni Research highlights that “investors have poured $330 billion into 26,000 AI startups over the past three years,” a much higher number than in previous years.

While this influx of capital has fueled innovation, it has also led to a crowded market with many companies struggling to make a profit, according to the firm. For example, the firm notes that Stability AI has faced financial difficulties, leading to layoffs and the departure of its CEO.

Similarly, they add, Inflection AI, despite raising more than $1.5 billion, saw its leadership leave for Microsoft (NASDAQ: ). The concern is that “if AI startups run out of money, their suppliers may find that AI-related revenues dry up quickly.”

Second, analysts warn that claims by AI industry leaders point to a potential bubble. Nvidia (NASDAQ:) CEO Jensen Huang has called its Blackwell architecture platform “perhaps the most successful product in the history of computing.”

However, analysts caution that they “do not believe the semiconductor cycle is over,” and that AI efficiency gains may not fully overcome the industry’s inherent volatility.

Yardeni Research acknowledges the potential of AI, but notes that “doubling the size of the global economy in a decade is a big claim.”

In short, Yardeni Research feels that while AI holds great promise, these two risks – excessive capital inflows and exaggerated expectations – highlight the need for investors to remain cautious amid the current surge in AI technology.

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