The AI Hype Meets Reality: A Closer Look at AI-Related Stocks in Decline

Artificial Intelligence (AI) has been one of the most hyped sectors in recent years, with many investors and analysts believing that AI-related stocks would continue to soar to unprecedented heights. However, a closer examination of the price charts of some of the most prominent AI-related companies tells a different story. Many of these stocks, which reached their peaks in late 2024 and early 2025, have since entered significant downtrends. This has left investors questioning whether the AI hype has run its course or if these stocks are simply experiencing a temporary correction. This article explores the current state of four AI-related stocks—Arista Networks, Nvidia, ServiceNow, and C3.ai—and what their performance might indicate for the future of the AI sector.

The Technical Outlook: A Cause for Concern

One of the key indicators of a stock’s health is its moving averages, particularly the 50-day and 200-day moving averages. These metrics provide insight into a stock’s short-term and long-term momentum, respectively. When a stock trades above these averages, it is generally seen as a positive sign, indicating strength and upward momentum. Conversely, when a stock falls below these averages, it may signal weakness or a potential downtrend.

For many AI-related stocks, the technical outlook is concerning. Several of these stocks have slipped below both their 50-day and 200-day moving averages. For instance, Arista Networks, a $105 billion market cap company, has seen its stock price decline below both averages. The 50-day moving average has turned downward, and the 200-day average appears to be losing its upward momentum. Similarly, Nvidia, the most actively traded AI-related stock with a market cap of nearly $2.75 trillion, has also fallen below its key moving averages. The stock’s price has dropped significantly since its peak in mid-November 2024, raising questions about whether the semiconductor giant can regain its footing.

ServiceNow and C3.ai are also facing similar challenges. ServiceNow, a $175 billion company, has seen its stock price plummet from a peak of $1,200 in January 2025 to around $850, representing a 29% drop. C3.ai, a smaller company with a market cap of $2.91 billion, has experienced an even more dramatic decline, with its stock price falling 53% from its December 2024 peak of $45 to a recent low of $21. Both stocks are now trading below their 50-day and 200-day moving averages, with their short-term averages turning downward.

These technical indicators suggest that AI-related stocks may be in for a rough ride in the near term. While long-term investors may be less concerned, as they often ride out market fluctuations, shorter-term traders and investors should take note of these trends.

Nvidia: The Leader in AI Faces Headwinds

Nvidia, often regarded as the leader in the AI space, has been one of the most talked-about stocks in recent years. The company’s dominance in the semiconductor industry, particularly in the production of graphics processing units (GPUs) that are essential for AI computing, has made it a favorite among investors. However, despite its strong fundamentals, Nvidia’s stock has struggled in recent months.

In mid-November 2024, Nvidia’s stock reached a peak of $152.50, but it failed to re-test this level in early January 2025. Since then, the stock has been on a steady decline, dropping below both its 50-day and 200-day moving averages. The recent price action has taken the stock below its early February closing low of $115, raising concerns about whether the stock can find support at these levels.

Despite the recent downtrend, Nvidia’s financials remain strong. The company has a price-to-earnings (P/E) ratio of 39, which is roughly in line with the S&P 500. Its debt-to-equity ratio is a modest 0.13, indicating a healthy balance sheet. Additionally, Nvidia pays a small dividend of 0.04%, which may attract income-focused investors. However, for growth-focused investors, the recent decline in the stock’s price could be a cause for concern.

Analysts remain bullish on Nvidia, with many attributing the recent decline to short-term market volatility rather than any fundamental weakness in the company. However, investors should keep a close eye on the stock’s technical indicators, as a failure to regain its moving averages could signal further weakness.

ServiceNow: A Software Giant Struggles to Maintain Momentum

ServiceNow, a leading software application company, has been one of the biggest casualties of the recent AI stock downturn. The stock reached an all-time high of $1,200 in January 2025, but it has since declined by 29% to around $850. This sharp drop has left investors wondering whether the company’s growth story is still intact.

From a technical perspective, ServiceNow’s stock is in a precarious position. The stock is now trading below both its 50-day and 200-day moving averages, and the 50-day average has turned downward. This suggests that the stock is in a downtrend and may face further selling pressure in the near term. However, it’s important to note that ServiceNow’s fundamentals remain strong. The company has reported impressive earnings growth, with a 17.66% increase in earnings this year and a 16.56% annualized growth rate over the past five years.

Analysts have also been upbeat about ServiceNow’s prospects. Cantor Fitzgerald initiated coverage of the stock in January 2025 with an “overweight” rating and a price target of $1,332. This suggests that many on Wall Street believe ServiceNow has the potential to regain its upward momentum in the coming months. However, the stock’s recent price action will need to stabilize before investors can feel confident about its recovery.

For long-term investors, ServiceNow’s decline may represent a buying opportunity, particularly if the company continues to execute on its growth strategy. However, short-term traders should exercise caution, as the stock’s technical indicators do not currently favor the bulls.

C3.ai: A High-Risk, High-Reward Play

C3.ai, a smaller software application company with a market cap of $2.91 billion, has been one of the most volatile AI-related stocks in recent months. The stock reached a peak of nearly $45 in early December 2024, but it has since plummeted by 53% to a recent low of $21. This dramatic decline has left investors questioning whether the stock can recover or if it has further downside.

From a technical perspective, C3.ai’s stock is in a deteriorating position. The stock is now trading below both its 50-day and 200-day moving averages, and the 50-day average has turned downward. This suggests that the stock is in a strong downtrend, and short-term traders should be cautious. However, it’s worth noting that the stock may find support at its early September 2024 low of around $19. If this level holds, it could provide a potential buying opportunity for those looking to take advantage of the stock’s volatility.

One factor that could work in C3.ai’s favor is its high short float of 18.89%. This indicates that a significant number of investors are betting against the stock, which could lead to a short squeeze if the stock experiences a rally. A short squeeze occurs when a stock’s price rises rapidly, forcing short sellers to cover their positions, which can further drive up the price. While this is a speculative scenario, it highlights the potential for C3.ai to experience a sharp reversal in its fortunes.

Despite its potential for a rally, C3.ai remains a high-risk investment. The company’s significant decline in stock price reflects the broader challenges facing the AI sector, and investors should carefully consider their risk tolerance before taking a position in this stock.

Broker Ratings: A Mixed Bag for AI-Related Stocks

While the recent decline in AI-related stocks has raised concerns, many brokers remain optimistic about their long-term prospects. For instance, UBS upgraded Arista Networks from “neutral” to “buy” in early March 2025, with a price target of $115. This upgrade suggests that analysts believe Arista Networks has the potential to recover from its recent downturn and deliver strong returns for investors.

Similarly, Cantor Fitzgerald initiated coverage of ServiceNow with an “overweight” rating and a price target of $1,332. This indicates that analysts are confident in ServiceNow’s ability to regain its upward momentum and outperform the broader market. Nvidia, too, has received positive coverage from many brokers, with analysts attributing its recent decline to short-term market volatility rather than any fundamental weaknesses.

However, not all brokers are bullish on AI-related stocks. Some have expressed concerns about the sector’s valuations, particularly given the recent decline in stock prices. While the P/E ratios of many AI-related companies are in line with the broader market, some investors may feel that these stocks are still overvalued given their current growth prospects.

Ultimately, broker ratings should be just one of many factors that investors consider when evaluating AI-related stocks. It’s important to conduct thorough research and consider both the technical and fundamental factors before making any investment decisions.

Conclusion: Navigating the AI Investment Landscape

The recent decline in AI-related stocks has left many investors questioning whether the AI hype has run its course. While it’s true that many of these stocks have entered downtrends, it’s important to remember that the AI sector is still in its early stages of development. Companies like Nvidia, Arista Networks, ServiceNow, and C3.ai are at the forefront of this transformative technology, and their long-term growth prospects remain strong.

However, the current technical outlook for these stocks is concerning, and investors should be cautious in the near term. For long-term investors with a “forever and ever” timeframe, the recent decline may represent a buying opportunity. Shorter-term traders, on the other hand, should pay close attention to the stock’s technical indicators and be prepared to act if the stock’s price fails to stabilize.

Ultimately, investing in AI-related stocks requires a combination of patience and diligence. While the sector is filled with potential, it’s also subject to significant volatility. By staying informed and taking a disciplined approach to investing, investors can navigate the challenges of the AI landscape and position themselves for long-term success.

This summary provides a comprehensive overview of the current state of AI-related stocks, highlighting both the challenges and opportunities that investors face. Whether you’re a long-term investor or a short-term trader, understanding the technical and fundamental factors at play will be crucial to making informed investment decisions in this dynamic and rapidly evolving sector.