Investors sell tech stocks as AI valuations disappoint | Ukraine news
High AI expectations collided with weak profit signals, sparking a broad tech selloff and renewed volatility across Nasdaq and global markets.
Technology stocks are again signaling investors’ nerves: many participants are disappointed by the high entry price to the AI market without the expected profit growth.
Nasdaq, as the technology sector’s barometer, is expected to fall about 1.2% on Friday, echoing the broad sell-offs in South Korea, where the Kospi index fell 5.8%.
For the week, Nasdaq finished every day in negative territory and is now down more than 6% from its peak set on June 2.
Investors are right to tread cautiously: valuations of AI stocks have remained elevated for several years, based more on the technology’s prospects than on rising earnings.
Demand for artificial intelligence is not fading – on the contrary, the sector shows strong growth. Yet rapid development required companies to spend and raise tens of billions of dollars to develop the technologies without immediate financial results.
This is not just a problem for the big players: growing demand would spark a data-center boom, requiring a huge number of powerful chips that chipmakers cannot manufacture quickly.
This arrangement creates a K-shaped market: chipmakers’ stocks soar while companies that supply AI models begin to decline.
Changes in leading companies and the scale of the correction
Microsoft and Meta found themselves in a bear market after falling about 20% from their highs; other Mag 7 giants – Amazon, Apple, Google, Nvidia, and Tesla – are also in correction with losses from peak levels of at least 10%.
In Apple’s AI moat case, on Thursday it announced price increases for the MacBook and iPad due to memory shortages, which led to more than a 6% drop in its shares. Micron, the memory and storage maker, jumped almost 16% on Thursday after reporting excellent results the day prior – driven by rising demand for semiconductor components.
These conditions are forcing the industry to weigh its steps: OpenAI is considering delaying its IPO due to market volatility, which could hinder reaching the desired $1 trillion valuation, according to the New York Times.
KOSPI, half of whose value is formed by two tech giants – SK Hynix and Samsung – again imposed a regulatory trading halt of 20 minutes on Friday. The market remained highly volatile: the index had risen about 90% over the year, but this week was extremely volatile with sharp swings.
This week continued with swings: down 10% on Tuesday, then up 5% and 3% on Wednesday and Thursday, followed by another decline on Friday.
While the tech sector remained a driver of the stock market rally in recent years, demand for semiconductors partially offset the declines, boosting their share of the S&P 500 to around 19%.
Rising bond yields and the possible Fed rate hikes could restrain the Tech sector, which is particularly sensitive to high borrowing costs.
If uncertainty in technology spills into active selling, other sectors will have to bear the main burden of the market. Yet other industries this week show growth, and the S&P 500 remains a little over 3% away from its all-time high.
Despite tech dominance, the market remains sensitive to changes in monetary policy and demand for chips; at the same time, the overall trend points to a possible rebound after the recent decline.
Despite the fluctuations, investors remain hopeful for the market to adapt to the new conditions: demand for AI solutions and the development of the industry partly support activity in the semiconductor and tech sectors.
In the future the industry may reach a balance between rising demand for AI solutions and companies’ financial results, allowing the market to gradually recover from the recent fluctuations.
