Investors have dumped US tech stocks, selling shares in chipmakers, memory companies and other previously high-flying companies that have powered this year’s Wall Street rally.
The losses extended to Asia, where Japanese memory chipmaker Kioxia fell 16 per cent on Friday. The Nikkei 225 index declined 5 per cent. Markets in South Korea, which have faced the most volatility from the AI trade, were closed.
The Nasdaq Composite dropped 1.5 per cent on Thursday as a fresh wave of volatility ricocheted across markets. Memory and computer storage makers faced heavy losses with SanDisk, western Digital and Seagate all down more than 9 per cent, while chipmakers Intel and Micron slid about 6 per cent.
Futures pointed to the Nasdaq 100 and S&P 500 indices opening down 1.3 per cent and 0.8 per cent on Friday.
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The tech sell-off is the latest sign of how investors are questioning the lofty valuations assigned to companies at the centre of the AI boom. It also shows how some traders have begun unwinding leveraged bets that are magnified by using substantial amounts of debt.
“The investor deleveraging phase that started in June appears to be still ongoing, and we see more room for deleveraging in leveraged equity ETFs, options and margin accounts, thus acting as a headwind for equities going forward,” said Nikolaos Panigirtzoglou, a strategist at JPMorgan.
Investors with one eye on cheap Chinese alternatives to groups such as Anthropic and OpenAI are also growing increasingly nervous about when data centre spending by US tech groups will generate returns. Chinese AI start-up Moonshot late on Thursday released a large language model with capabilities approaching those of US AI labs.
Taiwan Semiconductor Manufacturing Company on Thursday reported a 77 per cent surge in quarterly profits and said it would invest a further $100 billion to expand production in the US. Its shares in Taiwan fell more than 7 per cent on Friday.
IBM fell more than 20 per cent on Tuesday – a rout that exceeded even the drop it posted during the Black Monday crash in 1987 – after issuing a profit warning fuelled by customers shifting spending from its systems to the buildout of AI infrastructure.
“Tech can’t seem to win – blowouts aren’t sparking rallies and blow-ups are getting crushed,” said analysts at market insight group Vital Knowledge.
SpaceX, a stock that has been emblematic of the fervour for AI companies since its record $86 billion (€75.16 billion) initial public offering last month, continued to pull back, with its shares down 3.1 per cent to $131.11.
The company listed at $135 but had surged as high as $225.64 as retail investors piled into the company and its Wall Street underwriters projected vast growth in its revenues.
Meanwhile, a Goldman Sachs gauge of stocks that have been leading the US market, known as momentum stocks, fell 6 per cent and has shed a fifth of its value since the start of this month.
Big Tech companies, which are spending rapidly on building data centres that power the latest AI models, also pulled back. Google shares dropped 4.4 per cent, while Amazon fell 1.2 per cent. Debt issued by “hyperscalers” has also taken a hit in recent weeks amid questions over their vast borrowing and spending plans.
Investors are also keeping close tabs on the fresh flare-up in hostilities between the US and Iran. Washington launched a sixth straight day of strikes on the Islamic Republic on Thursday afternoon.
The escalating tensions have again snarled traffic through the Strait of Hormuz, the waterway that carried a fifth of the world’s oil prior to the beginning of the war in February.
Brent crude settled at $84.23 on Thursday, leaving the international oil benchmark up 15 per cent since the start of July.
Higher oil prices risk igniting a new bout of US inflation after a fall in energy costs last month helped ease consumer price growth.
Federal Reserve chief Kevin Warsh vowed this week that the central bank had “no tolerance” for persistently high price growth, and several other top officials have expressed concerns about inflation in recent days.
“We expect the purer macro forces – oil and the Fed – to resolve in a modestly benign direction,” Goldman Sachs strategist Vickie Chang said, while cautioning that “the main macro risk is a further sustained rise in oil prices”. – The Financial Times
