Wharton's Jeremy Siegel Says Investors Wrestling Less With Nvidia's Numbers, More With Lingering AI Anxiety

• The ongoing frenzy of AI investments is reminiscent of the fiber optic buildout in the late 1990s, Siegel said.
• Telecommunications companies invested over $500 billion after the Telecommunications Act of 1996 in laying fiber-optic cables to meet the burgeoning demand for the internet.
• Analysts at Schwab previously pointed out that Nvidia’s strong Q3 performance was not enough to ease investor concerns about the optimism around AI.

Jeremy Siegel, professor emeritus of finance at the University of Pennsylvania’s Wharton School of Business, on Tuesday stated that investors are not as concerned about Nvidia Corp.’s (NVDA) numbers as they are about the lingering anxiety resulting from investments in artificial intelligence (AI) technology.

Despite Nvidia’s strong third-quarter (Q3) performance, the stock declined after an initial rally fizzled out. Siegel stated in his latest weekly update that this suggests the decline is more due to other factors than to the company’s results.

“The market is wrestling less with Nvidia’s numbers and more with crosscurrents and lingering anxiety about whether the extraordinary AI capex cycle ultimately pays off,” he added.

Nvidia’s shares were down nearly 4% pre-market on Tuesday. Retail sentiment around the company trended in the ‘extremely bullish’ territory at the time of writing.

Reminiscent Of 90s Fiber Buildout

The ongoing frenzy of AI investments is reminiscent of the fiber optic buildout in the late 1990s, Siegel said. Telecommunications companies invested over $500 billion after the Telecommunications Act of 1996 in laying fiber-optic cables to meet the burgeoning demand for the internet.

“This is reminiscent of the late-1990s fiber-optic buildout—demand was real, but there turned out to be massive excess capacity. The good news is that this reset is washing out speculative excess rather than undermining the leaders of the cycle,” Siegel added.

AI Investment Anxiety

Analysts at Schwab previously pointed out that Nvidia’s strong Q3 performance was not enough to ease investor concerns about the optimism around AI.

“The market remains firmly in risk-off mode, as Nvidia's solid results weren't enough to convince investors that AI exuberance can continue,” the firm’s analysts stated in a note.

Since the Q3 results last week, Nvidia’s shares have declined by over 2%.

Earlier, ‘Big Short’ Michael Burry expressed concerns that hyperscalers are “understating depreciation” of chips from Nvidia. He added that hyperscalers ramping up capital expenditure by purchasing Nvidia chips should not result in extending the useful lives of the chips they had already purchased.

NVDA stock is up 36% year-to-date and 29% over the past 12 months.

Also See: Dow Futures Edge Lower As Investors Await Economic Data: GOOGL, META, NVDA, BABA Among Stocks To Watch

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