The artificial intelligence (AI) boom, which propelled tech stocks to unprecedented highs throughout late 2023 and early 2024, is now facing a significant reality check. A growing wave of skepticism regarding the sustainability of the AI frenzy, largely ignited by a recent MIT report highlighting limited returns on generative AI
A number of stocks fell in the morning session after investors took some profits off the table as markets awaited signals on future monetary policy from the Federal Reserve's Jackson Hole symposium later in the week.
A number of stocks fell in the afternoon session after markets pulled back as a hotter-than-expected wholesale inflation report for July dampened hopes for a Federal Reserve interest rate cut. The U.S. Producer Price Index (PPI), a key measure of wholesale inflation, rose 0.9% month-over-month in July, far exceeding the 0.2% increase that economists had predicted. Annually, prices at the wholesale level jumped 3.3%, also surpassing the 2.5% forecast. This hotter-than-expected data has poured cold water on widespread expectations for an interest rate cut from the Federal Reserve next month. Persistent inflation makes it less likely for the central bank to ease monetary policy. Sectors with high-growth stocks, such as SaaS, are particularly sensitive to interest rate changes, as the prospect of higher rates for longer can diminish the present value of their future earnings, leading to a decline in stock prices.
Unprofitable companies can burn through cash quickly, leaving investors exposed if they fail to turn things around.
Without a clear path to profitability, these businesses risk running out of capital or relying on dilutive fundraising.
Shares of aI-powered lending platform Upstart (NASDAQ:UPST)
jumped 3.5% in the morning session after it announced a new partnership with ABNB Federal Credit Union to expand its personal loan offerings using its artificial intelligence (AI) lending platform. The credit union, which serves over 76,000 members, will leverage Upstart's AI technology to provide more consumers with access to digital personal loans. This news adds to the company's momentum as it continues to use its AI model, trained on extensive data points, to improve upon traditional credit scoring. The positive development helped investors look past the company's announcement from the previous day of an upsized $600 million convertible note offering, especially as a portion of the proceeds are intended to repurchase existing debt. The stock's move was also supported by a favorable market environment, where a broader tech rally boosted investor sentiment.
AI-powered lending platform Upstart (NASDAQ:UPST) reported Q2 CY2025 results beating Wall Street’s revenue expectations, with sales up 102% year on year to $257.3 million. On top of that, next quarter’s revenue guidance ($280 million at the midpoint) was surprisingly good and 3.9% above what analysts were expecting. Its non-GAAP profit of $0.36 per share was 41.6% above analysts’ consensus estimates.
