US tech stocks experienced a decline, heavily influenced by Nvidia’s performance and broader concerns surrounding AI investment sustainability. On Thursday afternoon, the Nasdaq Composite index fell by 1.9%, with Nvidia’s shares dropping 5.3%, while the S&P 500 decreased by 1.1%.
Following the release of Nvidia’s fourth-quarter earnings, which showcased stronger-than-anticipated revenues and profits, initial after-hours trading saw a rise in the company’s stock. However, investor anxiety resurfaced as the subsequent conference call provided limited guidance on future revenue, according to Jim Reid, a macro research expert at Deutsche Bank. This triggered a significant drop in Nvidia’s share price when the market opened in New York.
Mike Zigmont, co-head of trading at Visdom Investment Group, explained that market reactions suggest a realization that the exceptional returns seen in AI investments may be temporarily over, leading to a wave of selling. The technology sector has faced numerous sell-offs recently due to concerns about the hefty capital expenditures required for AI, as well as the potential disruption to various industries like software and logistics.
Industry experts noted that the uncertainty surrounding tech spending and the geopolitical landscape complicates the situation further. Dan Hanbury from NinetyOne highlighted that investors are questioning how Nvidia can sustain its rapid growth, particularly with its major customers’ cash flow being impacted by AI-related investments.
Other chipmakers, including Broadcom and ASML, also saw declines, alongside businesses that rely on AI infrastructure. Meanwhile, some software companies, including Salesforce, found a measure of relief in the market despite earlier concerns about an AI-driven downturn in the sector.
Why this story matters:
- It reflects investor sentiment and market dynamics surrounding AI technology.
Key takeaway:
- Nvidia’s mixed earnings have heightened concerns over the sustainability of AI investments, affecting both the tech sector and broader market trends.
Opposing viewpoint:
- Despite challenges, some believe the long-term potential of AI will drive future growth, as suggested by software companies showing signs of recovery.
