Last year continued the impressive trend for artificial intelligence (AI) stocks, marking an ongoing rally that began in early 2023, spurred by OpenAI’s ChatGPT launch in late 2022, which ignited an AI competition. Memory chip manufacturer Sandisk topped the list with an astounding 559% gain in 2025. Meanwhile, decision-intelligence software leader Palantir Technologies (PLTR +1.34%) experienced a notable 135% increase in its stock price. Additionally, Nvidia (NVDA +0.87%) enjoyed a solid year, with a 36% rise, albeit limited by its size.
However, circumstances have changed. Many of these stocks have stalled in their growth. Nvidia shares remain at their September levels, and Palantir’s stock has retreated to its mid-2025 position. What’s going on?
Simply put, investors have realized that being involved in the AI sector isn’t sufficient. The hype must be substantiated by significant profits, and high valuations should be justified. Many companies in this space are failing to meet these expectations.
Profitability is Key
In the early stages of the AI industry, hardware companies like Nvidia and Broadcom were the only ones generating substantial profits. Nonetheless, investors showed a willingness to back any company with a promising growth narrative. After three years, the market is correctly questioning the profit margins of many tech firms, as the anticipated earnings haven’t materialized.
For instance, Palantir’s reported net income of $1.6 billion fails to impress against its massive $330 billion market cap. Even though per-share profits are projected to rise by over 70% this year and an additional 40% next year, these metrics contribute to over a 30% stock decline since its peak in November.
Marketability of AI Solutions
Furthermore, not every AI-powered solution proves to have lasting, marketable value. For example, various AI “agents” or digital assistants may be innovative, but they often don’t provide enough tangible benefits to justify their costs. This issue is reflected in a recent PwC survey revealing that 56% of CEOs have yet to see a financial advantage from AI investments.
That said, some AI solutions, like the automated customer service offerings provided by NiCE (NICE +2.71%), receive widespread acclaim. Recognized as a leader in the contact-center-as-a-service sector for 11 consecutive years by Gartner, NiCE’s growth underscores the demand for effective customer service technology.
Power Efficiency is Crucial
Finally, the surge in AI is straining the global power grid, a concern expected to intensify as more AI data centers emerge. The International Energy Agency (IEA) forecasts a 15% annual increase in data centers’ electricity consumption through 2030, which outpaces overall energy usage growth.
In response, the industry is adapting. For example, processing chips designed by Arm Holdings (ARM 3.98%) are becoming popular in AI data centers due to their lower power requirements. Similarly, the transition from 415-volt AC power supplies to more efficient 800-volt DC systems represents an essential evolution within the industry.
