Nvidia created an AI bubble, and software stocks are already paying the price

Nvidia Corp. increased the fervor for artificial intelligence on Wall Street, but plunging software stocks showed Wednesday why betting that the chip maker’s AI revenue will quickly ripple through the rest of the tech sector is a losing proposition.

Those companies largely beat expectations both for results and guidance with their reports, but did not provide anywhere near the level of Nvidia’s audacious forecast. Investors likely had outsize expectations heading into the results after bidding up software stocks in the past month — the iShares Expanded Tech Software Sector ETF IGV enjoyed its best month since 2020, gaining 10.6% in May.Initial comments from one analyst regarding C3.

This was exactly the set-up that led this column to question last week whether excitement for generative AI that was boosted by Nvidia’s report would create a stock bubble for tech. While Nvidia and perhaps some other chip makers and large cloud-computing companies could see near-term results from generative AI, any revenue boosts for other companies is likely far in the future and speculative at this time.

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