Wall Street believed that Nvidia’s big profits would allay investors’ fears that a bubble would form in artificial intelligence stocks. But she didn’t. So where does AI trading stand now? The answer varies depending on who you ask. On the one hand, there are skeptics. They worry that market valuations will soar as investors rush into a small group of stocks linked to the AI ​​boom. They believe that the hundreds of billions of dollars these companies are spending to stay in the competitive race is unsustainable, especially as some of them start borrowing to keep up with the pace of investment. In addition, the circular nature of these financing arrangements creates potential systemic risks, where the weakness of a single company can bring down the entire AI sector. On the other hand, optimists see the recent decline in artificial intelligence stocks as just a healthy correction that paves the way for further growth. For them, the giant tech companies at the heart of the AI ​​wave, such as Microsoft, Amazon, Meta and Alphabet, will continue to spend to develop their products, with no sign of slowing down. With strong demand in the sector and a regulatory environment supportive of growth, they believe the AI ​​investment cycle is still in its infancy. Also Read: Does the “Nasdaq Whale” Selloff of “NVIDIA” Shares Express Desperation? “There’s definitely a divide,” says Dick Mullarkey, managing director at SLC Management. “We’ve had a very long bull market, and valuations have risen to exaggerated levels, so the fear of the AI ​​bubble bursting is high.” He added: “But there is another group of investors looking to sources of motivation to extend the bull cycle, such as expectations of a rate cut from the Federal Reserve, a decrease in regulatory restrictions, an increase in mergers and acquisitions and public offering activity.” Sharp swings after Nvidia’s results…and unanswered questions. The state of uncertainty was clearly visible in the high volatility in the market on Thursday following Nvidia’s earnings report. The company’s shares initially rose more than 5%, supporting other artificial intelligence stocks, before reversing their trend and closing up 3.2%. The same scenario was repeated with the S&P 500 and Nasdaq 100 indexes, as they started higher and then quickly erased their gains to close in the red zone. “We saw an initial wave of relief after confirmation of strong demand, but investors are now asking the following questions: What about energy needs? What about margins? What is the return on investment? The relief waves cannot continue as long as the market has unanswered questions,” says Natalie Huang, managing partner at Apeira Capital Advisors. Investors got some relief on Friday as major indexes traded between gains and losses in the morning, before turning strongly into positive territory. Nvidia’s results come at a time when skepticism about artificial intelligence is beginning to spread to the broader market. Investors are increasingly worried about signs of a potential bubble, such as high valuations, circular financing deals, debt issuance and ambitious expectations that may be difficult to meet, especially for OpenAI, the private company that owns ChatGBT, which is quickly using up liquidity. Nvidia’s strong profits were not surprising, as the spending plans of its biggest customers were known in advance. The four largest companies, Microsoft, Amazon, Meta and Alphabet, which together account for more than 40% of Nvidia’s sales, are expected to increase their capital spending by 34% within 12 months to reach $440 billion, according to Bloomberg data. “The quarter was frankly excellent,” said Daniel Billing, portfolio manager at Sands Capital Management, which owns Nvidia shares. “The revenue outlook was 5% above market consensus.” A decline in chip shares…and questions about the return on investment. Aside from Nvidia, other chip companies are facing surprising problems as Wall Street questions the sustainability of spending on artificial intelligence. The chip stock index fell 11% in November, on track for its worst month since 2022, with shares of companies such as AMD and ARM falling more than 20%. On the sidelines, memory chip maker SanDisk, which floated its shares in February, saw a nearly 700% rise this year at its peak on Nov. 12, but a third of those gains evaporated after a sharp decline over the past two weeks. Also Read: Why is Nvidia the Queen of Artificial Intelligence Chips? But the most important aspect of the spending equation is return on investment, which investors are beginning to seriously question. The question today is: When will this big spending lead to faster growth and better profitability for AI software and services companies? Mark Lucchini, chief strategist at Janney Montgomery Scott, says the market needs clarity on this point to regain momentum. “It may take a quarter or two to get evidence of this, and until that happens it will remain a focus for investors,” Lucchini said. “As long as this issue remains unresolved, the generally optimistic outlook for AI may be threatened.” Nvidia’s results give the market some calm. Nvidia’s results may have slowed to confront this question as they calmed immediate concerns about the sustainability of spending. While Nvidia is a “cornerstone” in AI trading and its results were strong, that didn’t dispel doubts about the big spenders, according to Kevin Cook, chief strategist at Zacks Investment Research. This is where the real cracks started to appear, as Meta shares have fallen 21% since announcing its results on October 29, with investors worried about its mammoth investment plans. Microsoft is down 13% since the same day for the same reason. Companies with weaker balance sheets have also been hit harder, with CoreWeave shares down 46% this month and Oracle shares down 24%, heading for their biggest monthly loss since 2001. “For all those who warned of a bubble, they were probably right about companies like Oracle and CoreWeave going too far, as both companies said they needed to borrow. “Intensity just to stay competitive.” The scene is divided… and the future is full of bumps. All of this leaves investors divided between those who see the cup as half-empty. But there is one point of agreement: the journey for AI will be bumpier in the future. “Fidelity” will overcome bubble fears, said Art Hogan, chief market strategist at B. Riley Wealth. intelligence revolution, and cryptocurrencies collapse. I think it’s all part of the state of volatility we’re seeing.”