The shine may finally be coming off AI.
As Big Tech stocks slump, small caps are gaining momentum. The AI-driven rally that boosted the “Magnificent Seven” stocks has faltered, with semiconductor giant Nvidia (NASDAQ) falling 4.4% and other tech giants also in decline.
Daron Acemoglu of MIT and Jim Covello from Goldman Sachs have raised doubts about AI’s economic impact, suggesting the benefits might be overstated. Acemoglu predicts only a 0.05% annual productivity boost, far less than Goldman Sachs’ forecast of 9%.
The Russell 2000 index of small caps surged, outperforming tech-heavy indices. Investors are re-evaluating their positions, wary of the AI hype. With rising geopolitical tensions and potential U.S.-China trade wars, small caps could continue to outperform.
Increased scrutiny of AI’s value and elevated market expectations could lead to a significant market shift.
