This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:
Imagine you were self-contained in a bubble.
Every second the bubble would be inflating or deflating depending on the conditions outside the bubble.
That’s the environment we could be headed into as investors place the hot AI trade under a greater microscope. Not every day will be an inflationary one for the bubble.
And make no mistake, investors should be scrutinizing all things AI stocks, based on a few pricks to the bubble this week that deserve more attention than they got.
“Obviously we have lived in a very hyped environment, and at some point this has to be more rational,” Hewlett Packard Enterprise (HPE) CEO Antonio Neri (video above) told me on Yahoo Finance Live.
Neri was a few hours removed from surprising some investors with a 14% year-over-year quarterly sales drop. (We thank him for still coming on and answering the tough questions!). Full fiscal year sales guidance was trimmed despite HPE having billions of dollars in AI-related backlog.
So what gives?
Neri tells me companies are having difficulty implementing the AI technology they have purchased — problems ranging from the need to find new power sources to securing the physical space to house the equipment.
The other issue at play: persistent undersupply of high-powered AI chips. No chips, no ability to service orders. Simple equation.
HPE shares were hammered by 14% in after-hours trading on Thursday after the earnings hit the wires. The commentary and quarter were akin to a gut punch by Jean-Claude Van Damme.
But the stock did rally back on bullish comments Neri made to me on the margin outlook and the completion of HPE’s Juniper (JNPR) acquisition by later this year or early 2025.
Even so, HPE gave investors new reasons to be concerned about the AI hype.
Similarly, PC maker HP Inc (HPQ) was hesitant to bake strong demand for upcoming AI PCs into its current full-year guidance. More on that here in my chat with HP CEO Enrique Lores.
Meanwhile, Yahoo Finance Trending Ticker page favorite SoundHound AI (SOUN) took a beating on Friday to the tune of nearly 20%. The company’s earnings missed estimates and, oh yeah, it lost $88 million on a net basis last year.
“The Mag-7 is measured to be a bit frothy but not in a full-on bubble. Valuations are slightly expensive given current and projected earnings, sentiment is bullish but doesn’t look excessively so, and we do not see excessive leverage or a flood of new and naïve buyers,” billionaire hedge fund manager Ray Dalio warned in a new LinkedIn blog post.
“That said, one could still imagine a significant correction in these names if generative AI does not live up to the priced-in impact,” he continued.
There were a few inflationary moments for the AI bubble this week as well.
Dell (DELL) shares soared 26% as investors forgot the company made PCs and latched on to bullish AI comments on the earnings call.
AMD’s (AMD) market cap broke through the $300 billion mark for the first time on AI hope, capping another win for CEO Lisa Su.
And C3.ai (AI) shares popped 24% on Thursday after it reported earnings the previous day. Tech OG and C3.ai CEO Tom Siebel told Seana Smith, Brad Smith, and yours truly on Yahoo Finance Live that we are in the early innings of the AI cycle.
You were able to see that in C3.ai’s sales to the government in the fourth quarter.
Whatever the case, another week of up-and-down life inside the AI bubble.
Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on Twitter/X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email [email protected].
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