Cracks in the AI story: worst performing shares this year include semiconductor firms and cloud computing providers

Association with AI was the ticket to share price success in 2023 and 2024 as investors got excited about the technology revolution. The opposite is now playing out, with AI association being more of a hindrance than a help.

Cracks are appearing in the AI story as expectations are reined in. As with all ‘next big thing’ events, people expect the world from the latest hot trend, eyeing instant results and hoping profits go through the roof for all companies involved.

It looks like AI could be following the classic hype cycle, now going past the euphoria stage that’s been in play for two years. What comes next might be a small wobble and then a potentially large pullback as expectations are rebased and people realise things will take longer to play out.

Is Nvidia losing fans?

Market reaction to AI-related news so far this year already points to a shift in investor mindset.

Nvidia is one of the worst performing US stocks so far in 2025. Its share price had already been stuck in a narrow trading range since last summer as more people started to ask questions about when companies would get a positive return on their AI infrastructure spending.

Nvidia’s shares have this week fallen by 10.6% as better-than-expected results failed to calm market concerns about the appearance of China’s DeepSeek and how its lower cost approach to AI could be the trigger for the hype cycle to progress from euphoria to the start of the downward phase. DeepSeek threatens to be the trigger to make companies look hard at how much it costs to facilitate AI and search for cheaper solutions.

Amazon, Google, Meta and Microsoft are now building AI chips of their own, creating another headwind for Nvidia and suggesting that its stellar growth rates of the past few years may not be sustainable.

Worries about data centre growth

It was telling that certain US utilities fell on the stock market immediately after Nvidia’s results came out this week. This includes a 12% share price slump in Vistra, a gigantic power generation business in the US. It was hit by delays signing a deal to power data centres with nuclear plans acquired last year and investors worry that its prospects might not be as strong as previously thought.

A recent analyst report suggested that Microsoft had cancelled some data centre leases in the US and scaled back plans for international spending. That raised concerns we might be seeing the first wave of cutbacks on AI-related infrastructure spending. Shares in Vertiv Holdings, which designs and builds data centre infrastructure, notably fell 6.3% following Nvidia’s results.

Data centre operator CoreWeave couldn’t have picked a worse time to float on the US stock market. There is talk it will file for an IPO next week and seek a $35 billion valuation. Microsoft is CoreWeave’s biggest customer and it’s not a good look if the tech firm is supposedly taking the foot off the pace of data centre investments. Microsoft has denied this is happening, but it could have planted a seed of doubt in prospective investors’ minds when looking at CoreWeave.

Uranium concerns

On the UK stock market, a company called Yellow Cake has suffered share price weakness in recent months amid concerns that relate to AI. Yellow Cake invests in uranium and had previously been seen as a major beneficiary of the AI boom. Theoretically, a surge in demand for AI could put pressure on electricity supply so more nuclear power plants would be built. Murmurs that the AI craze might take longer to play out has recently weighed on Yellow Cake’s share price as investors fear nuclear demand won’t surge overnight, after all.

Other supposed AI beneficiaries feature heavily among the list of worst performing US shares year-to-date. This includes chip-related firms Skyworks Solutions, ON Semiconductor, Advanced Micro Devices and Broadcom. Magnificent Seven members Alphabet, Microsoft and Amazon are also on the list of stock market losers.

Source: AJ Bell, ShareScope, 28 Feb 2025