The Artificial Intelligence Market Is Red Hot Now, but Here's Why It Could Slow in 2025
The excitement in artificial intelligence (AI) has led to companies spending millions of dollars on new projects and upgrading their existing infrastructure in the hopes that they can cash in on new growth opportunities. Chipmaker Nvidia (NASDAQ: NVDA) has been tripling its sales due to incredible AI-fueled demand for its next-gen chips. Palantir Technologies (NYSE: PLTR) has also experienced an acceleration of its growth rate as the data analytics company is seeing an uptick in demand due to its new AI-powered platform.
Tech stocks, as a whole, have done well this year. The Vanguard Information Technology ETF rose 30% in the past 12 months, which is far higher than the S&P 500's gains of around 21%. But the danger is that the hype could fizzle out. Companies could scale back on spending, especially if a recession hits. Then, the stocks that have been flying high due to AI could come back down to reality. Here's why a slowdown could happen as early as next year.
When there's a flurry of spending activity, oftentimes there is correction that happens afterward, when companies stop to decide whether those expenditures were truly justifiable. A recent example of that was the pandemic-fueled spending that took place back in 2020 and 2021. Many companies went on hiring sprees due to the strong consumer demand. It wouldn't be long afterward, however, that layoffs would take place after many businesses, particularly in tech, realized they overestimated demand and hired too many people.
Source Fool.com
