JUANA SUMMERS, HOST:
Tech stocks have had a bumpy ride this week, down for several days, but up today. And it's part of a bigger trend. For months, markets have been jittery about the amount of money tech companies are spending on artificial intelligence. To tell us more about what is rattling the markets, we're joined now by NPR tech correspondent John Ruwitch. Hey there.
JOHN RUWITCH, BYLINE: Hi, Juana.
SUMMERS: So, John, we have heard from some major tech companies this week about their AI spending as they put out their quarterly earnings reports. Bring us up to speed.
RUWITCH: Yeah. Microsoft, Meta, Qualcomm and, today, Amazon are just a few of the big-name companies who've been reporting quarterly earnings this week. Yeah, and they're all reporting strong earnings and surges in capital expenditures or CapEx, which largely boils down to investment in AI, namely data centers or computing capacity to train and run AI. And across the board, executives are saying demand outstrips the supply of that computing capacity or compute, in the words of Meta CEO Mark Zuckerberg, who spoke on an earnings call yesterday.
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MARK ZUCKERBERG: The high-level observation is that there's just nowhere near enough compute for all the demand.
RUWITCH: So Meta and the others have been investing hundreds of billions of dollars on AI data centers. And that spending has actually become a huge driver of economic growth in the U.S. But we have this dynamic now where tech stocks and, in particular, companies involved in that AI build-out and the buying and selling of chips that go into those data centers have taken a hit in the past few weeks. There's been a serious sell-off in chip-related stocks. They rebounded a little today, but the volatility is perhaps the real story.
SUMMERS: But these companies appear to be seeing opportunities and trying to grab them. So why are markets nervous?
RUWITCH: Well, there's a few things going on. One of the biggest things is that the scale of the investment in AI is just unprecedented. On top of that, AI is developing at lightning speed, and there's this deluge of news and information about it every single day. And the markets just don't know how to process it all. Gil Luria is head of technology research at the financial services firm D.A. Davidson. He says we've never seen anything quite like this, and so it's hard to separate signal from noise.
GIL LURIA: The market's overreacting to every piece of news because the market is looking for the answer to the big question, which is, is the data center build-out almost over, right? That's the big question that everybody is asking every minute of every day right now.
RUWITCH: So investors, he says, are parsing every nugget of information, every statement from an executive or financial forecast for signs that things might be slowing down. But markets are also looking beyond just these American companies.
SUMMERS: What other factors are at play?
RUWITCH: Well, there's been a brutal AI sell-off of tech stocks in South Korea, which has some very important tech companies like Samsung and the memory chip maker SK Hynix. And all I say (ph), that's been sort of sloshing over into U.S. markets. And then there's China. In recent weeks, we've seen a new AI model called Kimi K3 out of China that some say shrinks the U.S. lead in AI and shows that free models, rather than the ones you pay for, can be excellent.
This week also, the tech media outlet The Information and Reuters reported that a Chinese company has started manufacturing an advanced machine used to make chips. It's a technology they didn't have before. NPR hasn't independently confirmed this, but these pieces of information have been interpreted by investors as bad for American AI and, therefore, bad for the profitability of companies spending all that money on American AI infrastructure because it all adds up to China's - it all adds to China's competitive edge, and that's weighing down stocks.
SUMMERS: So, I mean, John, it's clear the markets are nervous, but I have to ask, should they be?
RUWITCH: I don't think we really know, to be honest. I mean, look, chip stocks have slipped over the past month or so, but a fund of chip shares that some analysts watch as a proxy for the sector is up about 50% so far this year. For now, the analysts that I'm talking to think the fundamentals of the big companies involved in AI and chips are solid. Earnings of the listed companies, for instance, have been good, and behemoth startups like Anthropic and OpenAI are now making billions of dollars in revenue from zero not that long ago. The bottom line is nobody knows how this is all going to shake out over time, and the market's probably going to be on edge as long as investors keep feeling that uncertainty.
SUMMERS: And I'll just note that Anthropic, Amazon and Microsoft are financial supporters of NPR. That's NPR's John Ruwitch. Thanks.
RUWITCH: Thank you. Transcript provided by NPR, Copyright NPR.
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