Biggest U.S. tech sale in more than a decade reflects impatience with AI profits | Business News

The Nasdaq and S&P 500 suffered their worst single-day declines since 2022 – led by dismal financial results from Tesla and Google owner Alphabet.

The sell-off points to broader concerns surrounding the lofty valuations of a handful of technology giants, and how vulnerable the broader US market is to their fate.

The so-called “magnificent seven” of high-performing technology stocks are Microsoft, Amazon, Google Parent – ​​Alphabet – Tesla, Facebook (also known as Meta), Nvidia and Apple.

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Every amount lost during Wednesday’s trading.

Collectively, they had their worst day since Meta went public more than a decade ago.

The chipmaker Nvidiawhich is among the biggest benefactors of the AI ​​boom, has proved the biggest drag on the S&P 500, with its shares struggling to recover amid fears of escalating trade tensions between the US, China and Taiwan, where it is manufactured most of the world’s microchips.

While the U.S. presidential race and projections for inflation and interest rates in the country weigh heavily on stocks, Silicon Valley in particular is under pressure to show returns on its multimillion-dollar investments in developing artificial intelligence technology.

Alphabet shares fell 5% even though Google’s parent company posted better-than-expected earnings as analysts worried that increased investment in AI and other spending could hurt profits.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: “This harsh market reaction to Google’s earnings – which, by the way, were a rout – suggests that we are reaching a point in the AI ​​recovery where investors are increasingly more impatient to see their massive spending. turn into profits, while big spenders continue to say they should spend more before they see the benefits.

She added: “From a broader perspective, the fact that the Federal Reserve [rate cut] Expectations are rising is not positive for Big Tech stocks, as these giants were seen as a safe place to hide when rates were high and could see their advance slow due to a sector rotation. Therefore, a technology sell-off, combined with lower interest rates, is expected to increase appetite for [companies with smaller valuations].”

The size of technology giants has reached a point where not everyone accepts the idea that their growth is sustainable.

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Rising valuations in recent years have been concentrated in a small number of companies whose performance is interconnected, so some analysts have advised investors to spread risk and invest in a broader range of stocks.

Citigroup analysts recently advised investors to move their profits out of blue-chip AI stocks and “rebalance to a broader range of AI stocks across the value chain.”

All eyes are now on the remaining big tech companies, Meta, Amazon and Apple, which are expected to reassure investors when they report earnings next week.