Why AI Fever is Gripping the Stock Market

A fresh surge of investor excitement surrounding artificial intelligence is currently gripping global markets, fueled by colossal investments and growing apprehension about competition from China. This dynamic has created significant volatility on stock exchanges worldwide.

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This is a huge technological breakthrough that will bring about major societal changes but also significant volatility along the way.

Esbjörn Lundevall, an equity strategist at SEB, described the situation as a "huge technological breakthrough" that will bring about major societal changes but also significant volatility. He noted that after several strong months earlier in the year, the market has experienced a downturn. Major tech companies on Wall Street saw declines, while giants like Samsung and SK Hynix plummeted on the South Korean stock exchange. The Dutch semiconductor firm ASML also faced pressure on the Amsterdam stock exchange.

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It is more than Sweden's GDP, for example. This amount of money has quintupled in three years.

Lundevall attributes the market's volatility to the immense financial stakes involved. He pointed out that major U.S. companies involved in data centers plan to invest $850 billion in the coming year, a fivefold increase in three years. Recent reports concerning "circular flows" and Chinese competition have further unsettled the market. One catalyst was the discussion around Nvidia potentially offering $250 billion in guarantees to a customer, reportedly OpenAI, according to The Wall Street Journal. Lundevall expressed concern about this potential "circular flow" of money, suggesting that if investments are truly sound, they should attract market-based financing from sources other than their own suppliers.

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This potential need for a circular flow of money is in itself a cause for concern. The market feels that if the investments are so good, they should be able to get market-rate financing from someone other than their own supplier.

Adding to the market's unease is the rise of Chinese competitors. ASML, Europe's most highly valued public company, has largely held a monopoly on lithography machines essential for chip production. However, a Chinese entity has reportedly begun mass-producing these machines at a sophisticated level. Lundevall highlighted that while simpler models have been produced before, the recent reports indicate Chinese manufacturers are now capable of producing truly advanced machines. This development has particularly alarmed investors. For Swedish retail investors, navigating this complex landscape requires a high tolerance for risk, though Lundevall acknowledged that such areas also present opportunities for significant financial gains.

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Now, suddenly, a Chinese player has started mass-producing the machines, at a quite advanced level too.