US tech stock slide accelerates amid questions over AI value
▸ Earnings updates stoke fears ▸ Intel shares fall 30% ▸ ‘Reset’ in expectations
US tech stocks tumbled further yesterday as disappointing earnings from Amazon and Intel intensified investor fears about the sustainability of the AI boom.
The Nasdaq 100 dropped 3.7 per cent, following a $500bn rout in Alphabet shares on Thursday that sent the techheavy index down 1.4 per cent.
The index hit session lows after the FT reported that Anthropic might no longer target an investment-grade credit rating after its IPO.
The S&P 500 was down 1.9 per cent. Amazon shares sank 2.3 per cent after it posted weaker than expected sales in results after the market closed on Thursday. Downbeat forecasts from chipmaker Intel, in which the US government has a roughly 10 per cent stake, sent its shares down 30 per cent — on track for the company’s worst session since 1974. The Philadelphia Semiconductor index, which tracks the main US chip companies, fell 8.2 per cent.
“The combination of deteriorating cash flows and rising capital commitments means the debate over whether AI returns can ultimately justify the scale of investment may not be resolved any time soon,” said Emmanuel Cau, head of European and Apac equity strategy at Barclays.
“The direction of travel into next year should naturally be towards slower earnings growth” from the big technology companies, he added.
Crypto-linked stocks were also among yesterday’s worst performers following a huge hack on Binance, the world’s largest cryptocurrency exchange. Robinhood fell 9.4 per cent and Coinbase lost 13.2 per cent.
Rising anxiety about the sustainability of the AI infrastructure boom risked creating a “negative feedback loop” for the tech sector, said analysts at Vital Knowledge. “Gloomy psychology impairs the ability of companies to raise debt and equity, which could further pressure data centre spending.”
Investors’ growing anxiety over the AI boom hit Asian tech stocks, with Japan’s tech-heavy Nikkei 225 index closing down 2.1 per cent. OpenAI investor SoftBank fell 6 per cent, taking its losses from its June peak to 48 per cent.
“The major tech names are entering a no man’s land where they become uninvestable,” said Neil Newman, Japan equity strategist at Astris Advisory in Tokyo. “When heavyweights like SoftBank halve in value over a few months, it is neither a buy nor a sell. Investors will want to simply keep out of the way.”
Samsung Electronics and SK Hynix, the two biggest memory-chip makers, slid 3 per cent and 7.1 per cent, respectively, taking South Korea’s Kospi index 3.5 per cent lower. In Europe, chipmaking giant ASML lost 6.1 per cent and a basket of the region’s technology stocks fell 2.8 per cent.
Higher oil prices also weighed on risky assets such as stocks. Brent crude, the international benchmark, climbed to its highest level since April at $118 a barrel as investors feared looming escalation in the US-Iran conflict.
Concerns about AI spending have grown as profitable companies such as Google plough their free cash flow into capital expenditure and increasingly turn to public markets to raise more funds. Shares of Google parent Alphabet fell 13 per cent on Thursday, wiping a record $500bn from its market value after the company reported a second straight quarter of cash burn and revealed “AI mode” searches were threatening its advertising business.
“Expectations built into [tech share] prices are being challenged and are now resetting,” said Hank Calenti, global markets strategist at SMBC.
Prime brokerage data shows hedge funds had built up big exposure to the “Magnificent Seven” tech stocks heading into earnings season. Those positions are now being violently unwound, according to Charlie McElligott, a strategist at Nomura. “Bonuses are being determined,” he said. “If [a hedge fund] takes a stupid drawdown late in the year, in a market like this, you blow yourself up. You’re incentivised to take risk off the table.”
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