The anticipated celebratory week for the artificial intelligence boom instead saw a sharp downturn in tech stocks, with the Nasdaq 100 index plummeting 3.5 per cent on Friday night. This pushed the world’s key measure of tech sentiment into a correction, down 10 per cent from its record high on October 6. The rapid shift in AI sentiment, from peak to correction in just three weeks, has been startling as major fears surrounding the AI trade appear to materialise across the market.
Intel, a prominent chipmaker primarily known for manufacturing processors for personal computers, experienced a significant 29 per cent fall after issuing weak sales guidance. The company, which also supplies chips for data centres and is involved in the artificial intelligence sector, is battling supply chain issues in its newer data centre business and struggling with soaring component prices for its traditional segment. Meanwhile, Anthropic, an artificial intelligence company focused on developing advanced AI models, faced concerns over its ability to secure an investment-grade credit rating, critical for a firm requiring hundreds of billions in debt. Alphabet, the parent company of Google and YouTube, operates a vast digital ecosystem that includes search engines, cloud computing services, and advertising platforms. The company is a key player in the global technology sector, constantly innovating in areas like artificial intelligence. Despite strong cloud computing growth, Alphabet’s stock fell 13 per cent as investors worried about AI potentially cannibalising its core search business. Amazon also dipped, with higher capital spending and slower retail growth spooking the market.
This sell-off extended to other chip and AI-related firms, including Nvidia and Micron Technology. While the blue chip S&P 500 held up better, falling 1.8 per cent, and its equal-weighted counterpart even ended marginally higher, suggesting a rotation out of tech rather than a broad market exit. However, the pressing question remains whether this tech weakness will spill over into the broader market. Historical precedents from the 2000 dot-com crash, 2008 GFC, and 2018 taper tantrum, when the Nasdaq 100 also saw significant October drops, add to market nervousness, alongside ongoing interest rate hikes by central banks.
