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The AI wave hit a wall on Wednesday as tech stocks around the world experienced a pullback, sparking a multibillion-dollar reckoning.
SoftBank (OTCMKTS: SFTBY) led the decline, falling as much as 9.7% that morning after an aggressive bid to secure a $6 billion margin loan, backed by its subprime position in OpenAI, hit a dead end, according to a Bloomberg report (1).
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Masayoshi Son, CEO of SoftBank, is particularly bullish on AI. Earlier this year, Son told CNBC (2) that he believes the AI revolution will be “more than 10 times, probably 50 times bigger than the dotcom revolution.”
The June 10 drop came as semiconductor stocks in Asia and Europe also fell sharply. South Korean chipmaker SK Hynix (OTCMKTS:HXSCL) fell 7.5%, Samsung Electronics (OTCMKTS:SSNLF) fell 6.1%, while Taiwan Semiconductor Manufacturing Co. (NYSE:TSM) lost about 2%.
After years of rampant expansion fueled by generative AI, the cooling sentiment suggests the sector may be creaking under the weight of its own expectations.
“Investors are a little nervous about increased volatility this week,” Dan Coatsworth, head of markets at AJ Bell, wrote in a morning note, according to other CNBC reports (3).
A reality check on the rise of AI?
Traditionally, margin loans (4) rely on liquid assets that lenders can instantly value and offload to mitigate risk.
But OpenAI challenges that model. Although it dominates the zeitgeist, it remains a private entity, making its true market value uncertain and difficult for lenders to pin down. Naturally, that’s a deal breaker for banks that are wary of collateral they can’t definitively value during a market correction.
And despite Son’s enthusiasm for AI, history warns that transformative technology often breeds speculative excess. For example, the Internet reinvented commerce, but the collapse of the dotcom bubble (5) ended in a brutal purge when speculative capital exceeded real profit.
Companies like Pets.com disappeared (6), and even the biggest names had to shed assets to survive. Similar cycles (7) have been repeated with special purpose acquisition companies and cryptocurrencies.
While AI technology is fundamentally disrupting industries, the current price of entry is under scrutiny.
Read more: Thanks to Jeff Bezos, you can become a homeowner for $100, without the headache of being one.
How investors can protect themselves against uncertainty
SoftBank’s setback is a reminder that even the hottest trades in the market can cool down.
For investors concerned that AI valuations may be ahead of reality, gold has long served as a hedge against uncertainty and market excess (8), helping preserve purchasing power in difficult times. The logic is this: gold is limited and, unlike fiat currency, cannot be printed at will. That means it can better preserve value during a recession or bubble burst.
If you’re curious about adding precious metals to your broader inflation hedging strategy, a gold IRA from Goldco allows you to hold physical gold and other metals while still getting the tax advantages of an IRA.
Goldco offers a guaranteed buyback program, which means they will buy back your metals at the “highest price” based on market value if you ever decide to sell them.
If you want to explore whether precious metals could be a useful hedge for your portfolio, you can download Goldco’s free gold and silver guide to see if it’s a good option for you.
Plant seeds beyond AI
Another option is real estate.
Unlike high-growth technology companies whose valuations often depend on future expectations, income-producing real estate is backed by rental income and underlying property values.
For those interested in the long-term earning potential of residential rentals and vacation properties, a real estate platform like Arrived allows investors to purchase shares of SEC-qualified investments in rental homes and vacation rentals with a minimum investment of just $100.
Backed by investors like Jeff Bezos, Arrived gives both investors access to professionally managed real estate without the headaches of owning or purchasing an entire property. No midnight maintenance calls here for burst pipes.
Investors can explore Arrived’s full list of vetted properties, selected for their income-generating and appreciation potential, and begin building a real estate position in minutes.
For a limited time, when you open an account and add $1,000 or more, Arrived will credit your account with a 1% match.
Get a second opinion
When a single story drives markets, it’s easy to confuse momentum with a sound investment strategy.
After all, it can be exciting to catch a big wave, whether AI-generated or not. But a good financial advisor can help you determine whether you’re following trends or buying a company with long-term staying power. They can also help you see if your portfolio is adequately diversified or too exposed to a single sector.
That’s where Advisor.com can come into play. The platform connects you with a financial expert near you for free.
Advisor.com does the heavy lifting for you, vetting advisors based on their track record, client ratings, and regulatory history. Additionally, their network is made up of fiduciaries, who are legally obligated to act in your best interest.
Simply enter a few details about your finances and goals, and Advisor.com’s AI-powered matching tool will connect you with the qualified expert who best fits your needs based on your unique financial preferences and goals.
Finding the right advisor isn’t always easy – there’s no one-size-fits-all solution. That’s why Advisor.com allows you to schedule a free, no-obligation initial consultation to see if it’s the right fit for you.
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Article sources
We rely only on verified sources and credible third-party reports. For more details, see our ethics and guidelines.
Yahoo Finance (1); CNBC (2), (3); Investopedia (4), (5), (8); The New York Times (6); The conversation (7)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
