Nvidia outperforms amidst AI hype, Microsoft faces challenges

In the wake of artificial intelligence (AI) leading stock market trends this year, businesses continue to establish infrastructures to accommodate large language models and other AI processes. Nvidia (NASDAQ:NVDA), a renowned chip manufacturer, has surpassed Wall Street's expectations in its last two earnings reports, experiencing significant sales growth due to generative AI. The company's revenue has seen an unprecedented surge from negative growth in the first quarter to a 101% increase. This growth exceeds its peak during the crypto boom, with even higher revenue expected in the third quarter of 2023.

However, there are indications that the narrative of AI leading stock market trends may be overinflated. One such indication is the fluctuating traffic on ChatGPT, an AI chatbot that sparked interest in generative AI. Although traffic seems to be recovering now that schools have reopened, the platform experienced a drop in usage during the summer, suggesting its popularity was driven primarily by students seeking homework assistance.

Speculation is also circulating that Microsoft (NASDAQ:MSFT) is reducing orders for Nvidia H100 AI chips due to slowing traffic on ChatGPT and less-than-anticipated interest in Microsoft 365 Copilot. These rumors remain unverified but suggest that the enthusiasm surrounding AI might be exaggerated.

Microsoft, which invested $13 billion in OpenAI—the creator of ChatGPT—may now be facing challenges. CEO Satya Nadella previously fueled excitement around generative AI, claiming it would revolutionize search engines. However, since launching its ChatGPT-powered version of Bing, there has been little change in search engine dynamics. Google (NASDAQ:GOOGL) continues to dominate the market and generate substantial profits.

Investors are cautioned to temper their expectations surrounding AI. While AI's potential is undeniable, the widespread adoption of these new tools will take time. For instance, the internet and smartphones took several years to become mainstream. Investors are advised to avoid overhype in the AI sector, focusing instead on diversification, value consideration, and patience. While there could be many significant winners in the AI industry, it will likely take years for these gains to materialize.

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