Tech Stocks Sat on the Wall, Tech Stocks Had a Great Fall
On Wednesday July 24, technology stock losses in Europe and Asia were driven by AI-related tech companies such as Apple, Nvidia, and Meta Platforms.
Stock markets in Europe and Asia experienced a significant downturn on Wednesday, leading to the Nasdaq and S&P having their worst performances since 2022. This selloff in tech stocks occurred as the future of AI tech companies appeared uncertain, affecting the “Magnificent 7” tech giants, including Nvidia, Google’s parent company Alphabet, Amazon, Meta Platforms, Tesla, Apple, and Microsoft.
Last year, the Magnificent Seven were key drivers of the S&P 500’s growth, accounting for about two-thirds of its increase. Investors were hopeful that these companies would make huge profits from their investments in AI. However, there is growing skepticism among investors about whether the large amounts of money invested in AI will yield results soon enough.
The decline continued on Thursday, with the tech-heavy Nasdaq index slipping by 0.5% during morning trading. Chipmaker Nvidia dropped 1.4%, and Google-owned Alphabet fell by 1.2%. Other members of the Magnificent 7, including Amazon, Apple, Meta Platforms, and Microsoft, also saw drops in their stock value. The only member of the Magnificent 7 to experience a rebound on Thursday morning was Tesla, with its stock rising by about 3%.
As a reader, do you think these companies should still be called the “Mag 7” or, as Piper Sandler analysts stated, the “Lag 7”?
Stock Decline Impacts on Apple and Nvidia
Apple Inc. (AAPL) and Nvidia Corporation (NVDA) both recently experienced significant stock declines, driven by broader market dynamics and specific industry concerns.
On Wednesday, July 24, Apple’s stock fell by 3.6%, while Nvidia’s dropped by 4.76% due to ongoing geopolitical tensions and trade restrictions affecting the semiconductor industry. Geopolitical tensions and trade restrictions are straining relations between major countries, impacting global trade and economic stability. These issues particularly affect the semiconductor industry, leading to stock declines for companies like Apple and Nvidia. Apple, which has seen an 8% decline from its previous highs, faces both positive and negative outcomes from this downturn.
On the positive side, the decline may offer a buying opportunity for long-term investors, leveraging Apple’s strong product ecosystem and continuous innovation. However, the negative aspects include reduced investor confidence and potential impacts on revenue growth if consumer spending decreases.
Nvidia, known for its Graphics Processing Units (GPU) and AI, has faced similar market pressures, experiencing a 3.78% decline over the past week. This plummet in market value is partly due to concerns over stricter tech export restrictions and a shift away from high-growth tech stocks. Despite these challenges, Nvidia’s strong position in the AI playground and gaming markets provides room for potential recovery. Analysts remain optimistic, highlighting upcoming positive catalysts like advancements in AI technology and strategic partnerships.
Both tech companies have been cautious in dealing with such matters as they look to maintain growth and success in their future endeavors. From one side, Apple must direct its focus towards broadening its range of products and services. Conversely, Nvidia is required to maintain the pace of innovation in AI technology and broaden its market coverage despite pressures from outside.
Should AI’s Profitability be Questioned?
Some investors are increasingly questioning whether such massive bets on tech giants are driving AI’s growth. In a note Friday, Wedbush analyst Dan Ives said companies, utilities, and governments will spend more than $1 trillion on AI in the coming years.
“People are starting to ask more questions about the economics of AI (what is the ROI on all this investment?),” mentioned the analysts at Vital Knowledge on Thursday.
Investors’ worries only picked up steam after this week’s results from Tesla Inc and Alphabet Inc. While those quarterly earnings weren’t terrible, they did leave investors wondering whether other big companies may miss expectations too, according to Sam Stovall, chief investment strategist at CFRA.
“How many disappointments are we likely to see? Maybe let’s sell first and ask questions later,” he stated.
Expectations Placed on Tech Companies
There are high expectations regarding the profits that should be made by U.S. corporations, especially the so-called Magnificent 7: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. These firms have been among the important drivers behind the record performance for the S&P 500 for 2024.
Tesla was one of the biggest drags on stocks Wednesday, down 12.3% following its report of a profit drop of 45% for the spring, missing analysts’ forecasts.
“With great outperformance comes great expectations, and the bar for this group was extremely high – therefore, what may look like a ‘beat and raise’ report on paper might actually be disappointing, “Vital Knowledge mentioned regarding Alphabet, Google’s parent company.
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