The American stock exchange fell sharply on Wednesday, and some analysts are raising concerns about a possible AI bubble.
The market is not impressed by the start of the earnings season for megatech stocks, says Kathleen Brooks on the investment platform XTB to Bloomberg.
Wednesday became the worst day on Wall Street so far this year. The broad S&P 500 index fell 2.3 percent, which is the largest decline since 2022, and the tech-heavy Nasdaq fell 3.6 percent.
After Tesla's and Alphabet's quarterly reports, their shares fell. So did the rest of the companies in "the magnificent seven", namely Apple, Amazon, Microsoft, Meta, and AI-hyped Nvidia. Tesla fell by as much as 12.3 percent and Nvidia by 6.8 percent.
What worries investors is, among other things, Google's parent company Alphabet's extreme investments in AI initiatives and Tesla's lower profit, as well as the company's delayed robot taxi project.
Investors are finally starting to wake up after all the AI hype. They see that it's currently a much greater cost than what it generates in terms of revenue, says Peter Bookvar, chief strategist at Bleakley Advisory Group, according to Bloomberg.
Another analyst says to the news agency that 2024 may be the year when investors start calling tech companies "the so-so seven" instead – "the seven so-so's".
On Thursday, the decline continued for six of the seven companies. Alphabet fell the most, minus 3.1 percent, and Microsoft closed 2.5 percent minus.
Tesla went against the trend and rose 2.0 percent.
A sentiment-driven market
Jesper Fjärstedt is a macro and currency analyst at Danske Bank and says it's reasonable to expect a healthy correction on the stock exchange after the rush in the tech sector.
The development we've seen on the stock exchange hasn't been in line with the economic development. The stock exchange has gotten a bit ahead of itself.
Whether it's just a correction or a longer downturn is hard to predict at the moment. But Jesper Fjärstedt doesn't see a risk that the AI hype would be a bubble of "dotcom" proportions.
It's a very sentiment-driven market, which means that investors move their money from the tech sector as soon as a few of them show slightly weaker reports.
Decisive results next week
Next week, Apple, Microsoft, Amazon, and Meta will report their results. If their reports are positive, the market could just as well turn upwards again, according to Jesper Fjärstedt.
The Stockholm stock exchange's broad OMX index had fallen by 1.4 percent a few hours after opening on Thursday.
How much can a decline on the US stock exchanges spill over to Sweden?
Given the American market's global weight, the Swedish stock exchange will also fall in the short term if the American one does. But in the long term, it may provide room to invest in Sweden, which is more industry-oriented, for example, if investors choose to avoid tech in favor of more cyclical sectors.
Seven companies in the technology sector go by the nickname "the magnificent seven".
During 2024, they have accounted for around a third of the value of the S&P 500 index of the 500 largest listed companies in the USA.
The companies are: Alphabet (Google), Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla.
