Wall Street could be heading for an AI winter in 2025 – Here is why

Source Cryptopolitan

Wall Street’s AI dream might be cracking under pressure, and 2025 could be the year it all cools off. Nvidia’s August stock collapse painted a grim picture, even though it came on the heels of a blockbuster earnings report.

CEO Jensen Huang mentioned a small production glitch with Nvidia’s new chip. It was resolved quickly, but the damage was done. Shares tanked in minutes, only to recover when investors realized they had overreacted.

The sentiment isn’t isolated. Top voices in AI have been sending subtle warnings. Google’s Sundar Pichai, speaking to the New York Times, said the easiest wins in AI are behind us. “As we go to this next level, you need more insightful breakthroughs,” he explained.

OpenAI’s Sam Altman was even gloomier, saying artificial general intelligence may not matter as much as people once believed. Behind closed doors, insiders whisper that OpenAI is struggling to deliver the revolutionary advancements it promised.

Its latest model releases have felt more iterative than transformative, and the “wow” factor of tools like ChatGPT seems to be wearing off.

Nvidia and OpenAI struggle to sustain AI’s momentum

Nvidia has been the poster child for AI optimism. The company’s chips are the backbone of most machine-learning operations, and its financial performance proves that dominance.

Then there’s OpenAI, backed heavily by Microsoft. Its Sora video generation model—touted as revolutionary—has been described by some as an expensive parlor trick. Also, Ilya Sutskever, a former OpenAI engineer, recently left to start his own AI company.

Before leaving, he said, “We have but one internet,” a nod to the industry’s growing data problem. Companies are running out of new material to train their models, and creators are now demanding compensation for their content.

This scarcity is putting AI’s future in jeopardy. Feeding larger models with data costs a fortune, and the returns are shrinking. For every new capability added, companies spend millions. But many of these advancements are failing to resonate with users

Even Tim Cook, Apple’s CEO, seems to be hedging his bets. In June, he admitted that Apple’s AI would “never” be 100% free of hallucinations. It was a rare moment of honesty but also a blow to the company’s image. The holiday sales quarter may provide some clarity, but so far, AI hasn’t been a game-changer for Apple.

Wall Street braces for turbulence

Wall Street is already jittery though. The Federal Reserve’s recent decision to slow down rate cuts tumbled the market. The Dow Jones Industrial Average plunged 1,100 points in a single day, marking its worst losing streak since the 1970s.

Futures tied to the Dow dropped another 143 points, or 0.3%, on Friday, while S&P 500 futures shed 0.5%. Nasdaq futures fell 0.9%.

This turbulence is also about unmet expectations. Analysts predict meaningful AI software revenue won’t materialize until 2026. That’s a long time for investors to wait, especially after the explosive growth of AI hardware sales in 2023 and 2024.

Meanwhile, Bitcoin took a beating, dropping over 9% to fall below $93,000. This was a sharp reversal after hitting an all-time high of $108,000 earlier in the week. Companies tied to crypto, like Coinbase and MicroStrategy, also saw their shares slide, with losses exceeding 5%. Robinhood wasn’t spared, shedding 6%.

The market’s fear gauge (the VIX) spiked again, rising 9% on Friday to hit 26.16. Earlier in the week, it saw its second-largest jump in history, soaring 74% in a single day.

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Disclaimer: For information purposes only. Past performance is not indicative of future results.
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