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The current AI oversupply has prolonged the cost recovery on major AI investments, which could force large corporations to shift investment focus.
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The bullish momentum of the “Magnificent Seven” stocks could be coming to an end due to investor disappointment related to a lack of technological development.
The Magnificent Seven is a moniker used for some of the top-performing tech stocks, including Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla.
The Magnificent Seven hype may be coming to an end due to investor disappointment related to artificial intelligence (AI) development, according to Sandeep Rao, senior researcher at Leverage Shares.
The researcher told Cointelegraph that advancements in AI have not significantly reduced the cost of human labor, which has left investors disillusioned:
“This promise has proven to be overstated, as the human labor cost savings in AI-heavy firms have so far been minimal.”
This could lead to investors repositioning themselves and looking for other promising stocks to hold long-term, added the researcher.
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Will AI oversupply crash the Magnificent Seven?
Except Tesla (TSLA) which fell over 19% year-to-date (YTD), all other Magnificent Seven stocks are in the green, with Nvidia (NVDA) leading the pack, up over 117% YTD, according to Nasdaq data.
However, AI-related spending from large companies has led to several of AI models that far exceed the capacity required to run the global internet.
This oversupply could make the cost recovery on these AI investments much longer, explained Rao:
“As a result, tech megacaps are likely to pump the brakes on AI-relevant spending and adopt a more milestone-driven approach, while investors, whose FOMO has largely dissipated, are now favoring higher diversification.”
All of the Magnificent Seven stocks fell during the past month, with Tesla logging the biggest monthly loss of over 21%, followed by Nvidia with over 20%.
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Magnificent Seven crash could pressure Bitcoin price
During last week’s $510 billion crypto market sell-off, the Magnificent Seven stocks lost over $650 billion in cumulative market capitalization during regular trading on Aug. 5.
Another potential decline in the Magnificent Seven could lead to lower Bitcoin (BTC) prices, according to Akshay Nassa, the founder of Chimp exchange. Nassa told Cointelegraph:
“The correlation between stock market performance and cryptocurrency values is well-documented; as major tech stocks falter, investor sentiment generally shifts away from alternative assets, including Bitcoin.”
Alvin Kan, the chief operating officer of Bitget Wallet, also expects Bitcoin to be pressured from another potential decline in the Magnificent Seven.
Kan told Cointelegraph:
“If the Magnificent 7, including Amazon and Apple, are falling, investors would want some form of insulation from even more risky assets like Bitcoin. This means that the extreme capital flight in the broader financial market can also weigh in on Bitcoin price.”
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This article first appeared at Cointelegraph.com News
