Largest US technology sell-off in more than 10 years reflects impatience regarding AI profits | Business News

The Nasdaq and S&P 500 experienced their most significant single-day decline since 2022, primarily due to disappointing financial results from Tesla and Alphabet, the parent company of Google.

This sell-off highlights concerns regarding the high valuations of a select few tech giants and the potential impact on the broader US market.

The “magnificent seven” of tech stocks – Microsoft, Amazon, Alphabet, Tesla, Facebook (Meta), Nvidia, and Apple – all saw a decrease in value during Wednesday’s trading session.

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Together, they experienced their worst day since Meta’s initial public offering over a decade ago.

Nvidia, a major player in the AI industry, had the biggest negative impact on the S&P 500, with concerns over trade tensions between the US, China, and Taiwan affecting its stock performance.

Aside from broader economic factors like the US presidential race, inflation, and interest rates, there is pressure on Silicon Valley to demonstrate returns on its significant investments in AI technology.

Despite Alphabet’s parent company reporting better-than-expected profits, its shares fell by 5% due to concerns over increased AI investments impacting earnings.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, stated: “The market’s strong reaction to Google’s earnings, which actually beat expectations, suggests that we are reaching a point in the AI surge where investors are eager to see returns on their significant investments, while big tech companies argue for more spending before reaping the benefits.

She further explained: “With rising expectations for Federal Reserve rate cuts, the outlook is not positive for Big Tech stocks, which were previously seen as safe havens in high-rate environments. A potential tech sell-off combined with lower interest rates is likely to increase interest in companies with smaller valuations.”

The immense size of tech giants has led some to question the sustainability of their growth.

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Recent valuation increases have been concentrated on a few companies with interconnected performances, prompting some analysts to suggest diversifying investments across a broader range of stocks to mitigate risk.

Citigroup analysts have recommended investors take profits from high-flying AI stocks and redistribute towards a wider range of AI stocks throughout the value chain.

Investor focus now shifts to the upcoming earnings reports from remaining tech giants Meta, Amazon, and Apple, as they seek to reassure investors.