Dell shares plunged 18 per cent following the company’s recent earnings report, its biggest one-day fall since it returned to public markets in 2018.
A record sell-off would ordinarily give shareholders’ sleepless nights, but investors can’t complain – ultimately, the stock price merely returned to where it was trading a week earlier. Fuelled by rocketing demand for AI computing equipment, Dell’s stock has tripled over the past year.
The rally gathered pace following AI giant Nvidia’s latest earnings report, with Dell shares spiking 22 per cent in a week. Those gains were then erased in a single day, even though earnings topped expectations and Dell reported strong demand for its AI servers.
A large-cap $95 billion stock such as Dell shouldn’t be swinging around like this. Alphabet shares have seen similarly wild swings over the past 18 months, with Mr Market’s mood going from jittery to euphoric as investors’ debated Google’s AI progress.
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Such swings show the dangers of forecasting in new, hyper-growth sectors such as AI, a point made in a recent Research Affiliates note. It reckons AI is in the early stages of an investment bubble and suggests the internet bubble of the 1990s offers lessons for investors.
One such lesson: picking winners and losers is hard. Even “seemingly invincible” companies such as Intel can falter, while “some of the biggest winners of the internet revolution only emerged later”, it notes. Similarly, while some forecasters predicted the end of using office paper, “the spread of personal computing and printing peripherals actually increased paper use for many years”.
The evolution of generative AI may be similarly unpredictable, with some of the greatest GenAI companies “yet to emerge”. Moral of the story: eschew AI predictions and own a diversified portfolio.
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