Tech Giants Face 'Show Me' Moment as Tech Stocks Face Turbulence
Global markets faced a turbulent week as investor concerns over tech earnings and economic uncertainty led to a major tech stocks fall.
The Nasdaq Composite Index fell almost 3%, weighed down by Microsoft and Meta, despite beating expectations from earnings. Shares of Microsoft fell by 6.1%, while Meta by 4.1%, mainly on apprehensions of increased capital spending in AI but why did tech stocks fall this week?
“Earnings expectations have been high and they’re meeting them, but not to the same degree as prior,” said Jack Ablin, Chief Investment Officer at Cresset Capital Management.
Major technology companies like Microsoft, Google, and Amazon are investing heavily in AI infrastructure, including data centers and specialized chips. However, investors are concerned about the lack of immediate financial returns from these expenditures, fearing what could be an inevitable tech stocks failing.
Geopolitical Apprehensions and Pre-Election Tech Stocks Fall
Broader economic factors also contributed to the cautious market tone. With the U.S. election looming large, sentiment was also skewed towards adopting more conservative investment approaches to avoid the idea will tech stock keep failing.
“With the U.S. election just around the corner, many investors are adopting a more cautious stance,” said Fawad Razaqzada, an analyst at City Index, as speculation mounts of a correction in the S&P 500. In response to the changing market attitude, safe-haven assets leaped higher, with gold rising as high as $2,790.10 per ounce.
European markets also saw a decline during trading hours, with Frankfurt and Paris indices, with each dropping around 1%. Notably, French bank Societe Generale shares surged approximately 11% following strong earnings, while BNP Paribas fell nearly 5% after missing projections.
London’s FTSE 100 was down 0.6% after a historic budget move from the UK government, which came with significant tax hikes. “For a government that planned to boost growth, they have fallen spectacularly at the first hurdle,” said Kathleen Brooks, Research Director at XTB.
Tech-heavy Earnings Also Cast Doubts US Tech Stocks Fall
The recent tech stocks fall, heavy with tech names, magnified skepticism over tech equity valuations, with comparisons to the dot-com bubble resurfacing. Companies including Microsoft, Meta, Google, and Nvidia have poured billions into generative AI, and demand is high for products capable of generating text, images, and videos.
Bank of America brought that exuberance down a peg when it stated, “We expect AI to transition from a ‘tell me ‘To a ‘show me’ story, with scrutiny over any disconnect between investments and actual revenue generation.” Microsoft’s big investments in OpenAI haven’t yet led to much revenue; Nvidia, though up more than 181% this year, finds itself with increased competition.
Despite broader market hesitation and DOW tech stocks fall, companies like Broadcom and Qualcomm are experiencing high demand for custom AI chips, as companies race to expand their AI infrastructure. Data analytics firm Palantir has defied market trends by showing steady gains, but investors continue to watch which established industry leaders or new AI startups will dominate the future landscape of generative AI.
Investors will be particularly attentive to signs of the tech stocks fall in order to make tangible financial returns that define the future of technology and avoid US tech stocks failing amid promises and risk in this ever-changing marketplace.
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