Global tech stocks saw their biggest plunge since March, with a gauge of Asian tech stocks tumbling 6% and South Korea's Kospi plummeting 10%. This downturn was largely driven by concerns about the sustainability of AI-driven rallies and fears that high capital expenditure on AI infrastructure, often debt-funded, might not yield sufficient returns. Analysts are also pointing to a potential shift in the balance of the AI boom.
On Wall Street, major indices ended sharply lower. The Nasdaq Composite dropped 2.21% to 25,587.04, the S&P 500 fell 1.44% to 7,365.47, and the Dow Jones Industrial Average slipped 0.09% to 51,665.49. Semiconductor stocks were particularly hit hard, with the Philadelphia Semiconductor Index plunging 7.9%. Companies like Nvidia lost 4.1%, while Micron Technology and SanDisk each tumbled about 13% ahead of Micron’s earnings release.
The selloff was exacerbated by investor jitters over a potentially more hawkish US Federal Reserve, with traders increasingly pricing in a second rate hike by December. This could make borrowing more expensive for tech firms developing costly AI technology. The CBOE Volatility Index, Wall Street’s fear gauge, climbed to 19.52, reflecting growing market uncertainty. Defensive sectors, such as consumer staples, saw investors rotate into them, with consumer staples rising 1.8%.
While some analysts attributed part of the decline to profit-taking after a prolonged run-up in prices, there are also underlying worries about the ability of AI investments to generate profits matching the colossal spending. An MIT study found that roughly 95% of businesses invested in AI had yet to make money, representing a combined financial investment of around $40 billion. Despite the dip, some analysts remain cautiously optimistic, viewing this as a "gut-check moment" rather than a burst bubble, given the overall long-term outlook for AI.
