Market Volatility Ahead: Tech Giants Face AI Scrutiny
The Federal Reserve’s interest rate decision and Chair Jerome Powell’s press conference were already expected to make Wednesday afternoon eventful for the stock market. However, investors were more focused on the earnings reports of three tech behemoths – Meta Platforms Inc., Microsoft Corp., and Tesla Inc. – scheduled for after trading hours.
AI Spending Under the Microscope
The tech giants are facing increasing scrutiny over their artificial intelligence (AI) investments, which have yielded meager returns. This is particularly concerning in light of DeepSeek, a Chinese AI upstart that has seemingly caught up with the tech giants at a fraction of the cost. As a result, the stakes are high for these earnings reports, with hundreds of billions of dollars in capital spending at risk.
Tech Earnings Implications
The implications of DeepSeek’s rapid rise are profound for tech earnings. In the last 12 months, the group of seven tech giants – including Alphabet Inc., Apple Inc., and Nvidia Corp. – have added over $5 trillion in combined value, rallying 66%. The rest of the US stock market has gained $8 trillion, with the tech behemoths accounting for more than half of the S&P 500 Index’s 24% advance.
Disparity Between Big Tech and the Rest
The disparity between Big Tech stocks and the rest of the market was evident this week. Monday’s tech wipeout sent the S&P 500 down 1.5%, while Tuesday’s tech rebound sent the index climbing almost 1%. This volatility has led to diverging bets on the impact of DeepSeek’s rise.
Mixed Market Performance
Nvidia has lost over $300 billion in market value this week, while Meta’s shares have extended their winning streak to a seventh-straight session. Microsoft’s market performance has been mixed, and Tesla’s shares have nearly doubled since its last earnings report, largely due to Elon Musk’s rising political influence.
Shaking the Foundation
The AI landscape is expected to undergo a significant shift, with investors reassessing their expectations. “This should shake a lot of the foundation of what people expected to happen going forward,” said Michael O’Rourke, chief market strategist at JonesTrading. “These companies are so large and so expensive you could easily see them go down 10% or 20% over time.”
Leave a Reply