TLDR
- US and Asian stock markets experienced sharp declines, with tech and AI-related stocks hit hardest.
- The S&P 500 fell 2.3% and the Nasdaq dropped 3.6% in their biggest one-day falls since 2022.
- Major tech companies like Nvidia, Alphabet, Microsoft, Apple, and Tesla saw significant drops in share prices.
- Investors are concerned about high AI-related spending without immediate revenue benefits.
- The selloff wiped out about $1 trillion in value from the Nasdaq 100 Index.
Financial markets in the United States and Asia experienced sharp declines as investors sold off shares in technology companies, with artificial intelligence (AI) stocks bearing the brunt of the selloff.
The downturn, which wiped out about $1 trillion in value from the Nasdaq 100 Index, marks the biggest one-day fall since 2022 for major US indexes.
On Wednesday, the S&P 500 lost 2.3% while the tech-heavy Nasdaq fell 3.6%. The Dow Jones Industrial Average also dropped by 1.2%. The selloff continued into Thursday, with Japan’s Nikkei index falling by more than 3%, leading declines in Asia.
The losses were driven by major tech firms that have been at the forefront of the AI boom. Nvidia, which has been one of the main beneficiaries of AI-related investments, saw its shares drop 6.8% and has lost about 15% of its value in the last two weeks.
Other tech giants weren’t spared: Alphabet’s stock price fell 5%, Microsoft dropped 3.6%, Apple declined 2.9%, and Tesla plunged more than 12%.
The sudden downturn comes as investors reassess the AI-fuelled stock market boom that has driven much of this year’s gains.
Concerns are growing about the substantial investments being made in AI technology without immediate revenue benefits. Jun Bei Liu, Portfolio Manager at Tribeca Investment Partners, noted, “Investors are now becoming more concerned about all this expenditure with AI without the revenue benefit.”
Alphabet’s recent financial results, while beating analyst expectations, highlighted the high spending that many tech companies are committing to AI development. This has raised questions about the timeline for these investments to pay off. Alec Young, chief investment strategist at Mapsignals, summed up the sentiment:
“The overarching concern is, where is the ROI on all the AI infrastructure spending?”
The selloff also affected companies involved in AI hardware. Super Micro Computer Inc. dropped 9.15%, while Broadcom Inc. lost 7.6%. In Asia, chip makers Renesas Electronics and Tokyo Electron in Japan and South Korea’s SK Hynix were among the big fallers.
This market correction has sparked discussions about a potential AI bubble. Jim Covello, the head of equity research at Goldman Sachs Group Inc., is among a growing number of market professionals questioning the commercial hopes for AI and the vast expense required to build out the necessary infrastructure.
The recent pullback doesn’t necessarily signal the end of belief in AI’s potential. As Liu pointed out, “I don’t think this will mark the start of the disbelief in AI… it just simply means investors will focus more on returns in this space than just buying the whole sector.”
However, the magnitude of the drop has raised alarms. Tech stock valuations had moved into historically frothy territory, with many big tech companies still priced at high multiples despite the selloff. This has increased the stakes for upcoming earnings reports from other tech giants like Microsoft, Meta Platforms, Apple, and Amazon.
