Wall Street is bracing for a careful start as the tech exodus makes a comeback. The 1.1% slide in Nasdaq 100 futures and a 0.5% dip in the S&P 500 are a sign of the strain on some of the priciest chip and platform stocks, even after we had a little reprieve from Micron.
Global tech rout resets the AI trade
It was in Asia where the tide turned first. Seoul saw Samsung and SK Hynix get sold off hard enough to be halted for a second time in as many days. Then there’s SoftBank, which tumbled 13% on word that OpenAI might not be going public until 2027, putting a damper on any hopes for a quick return on venture capital.
You could already tell the mood had soured in the US. The Nasdaq gave up its morning lead to finish 1% in the hole, with Apple’s 6% fall making a mockery of what was happening at Micron. By Friday, the malaise had spread and the Nasdaq 100 was heading for a 3% loss for the week.
Dow-linked futures were in the red by 0.1%, but this is more of a rotation out of the growth names than a full-blown risk aversion. It’s all part of an investor’s way of sizing up whether all that money put into AI will actually show up in the near term.
Valuation stress pushes investors to the sidelines
Brokers will be the first to tell you the issue isn’t that AI is going away, it’s that we have to come to terms with the kind of expectations we’ve set. Vested Finance puts it down to the lofty numbers built into these stocks, not the end of the road for the theme.
For the last 12 months or so, there has been a stampede into the suppliers of memory, networking and the like, and valuations have hit the ceiling. Now, with costs for the infrastructure side of things on the up and some softness in pricing, people are looking to take some chips off the table.
The news of an OpenAI delay doesn’t help; it’s a reminder that liquidity for some of the big backers may be further off than they thought. That ripples through to the rest of the AI space, where leadership has been a bit thin on the ground.
What you’re seeing is driven by a few things:
– Valuations that are a bit of a stretch after such a run
– The tab for putting in new AI data centers
– A closer look at what’s in store for future AI projects
– High-profile listings that aren’t moving as fast as you’d like
Micron’s burst of optimism fades amid broader chip slump
For a while, you could have been forgiven for thinking the heavy spending on AI was worth it, thanks to some very strong numbers from Micron in its third quarter. You could have made a 16% on the stock in the last session if you were in on it when the fine print was put to the test. But that kind of good feeling didn’t last.
The rest of the chip pack has been sliding, with old worries about whether earnings and all those capital-heavy plans can be sustained coming back to the fore. Alphabet is down 2%, Nvidia 1.14% – a sign of some of the heat being taken out of the most overdone AI positions.
“Investors are more attuned to valuations that are a bit of a stretch, the cost of building out AI, and a sterner tone from US policy,” says Fawad Razaqzada of Forex.com. “So you’re not going to see as much of a free ride on the way up or as many people pouncing on every dip.”
Macro: inflation, rates and the dollar
There’s a lot of give-and-take in the macro environment. The PCE price index for the 12 months to May came in at 4.1%, the first time we’ve seen it top 4% since April 2023, with energy costs in the wake of the Iran conflict doing most of the heavy lifting.
Markets have recalibrated but are still set. CME FedWatch figures show an 80% chance of a Fed hike in December, down from 85% before the PCE numbers and 61% prior to the Fed’s get-together last week.
The dollar has put in one of its best monthly showings in over a year, though it gave back 0.2% today as the euro and pound inched up. The yen was flat at 161.66.
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Oil cools some of the inflation talk
On the flip side, crude is moving in the other direction. Brent is under $73, the lowest we’ve seen since late February, and off 9% for the week. It’s looking like a third consecutive weekly loss and the steepest month-on-month drop since 2020. WTI in the US hit an intraday low near $69, a 4% slide.
With the Strait of Hormuz open for business again and a new understanding between the US and Iran allowing Iranian oil to flow, there’s been a lift in both volumes and mood.
That eases the pressure on central banks to act in a hurry. But with PCE where it is, any number that moves the needle on policy will be met with some jitters in risk assets.
Where we stand**
The AI names aren’t as unchallenged as they were; the focus is shifting from the hype to the hard numbers. The Nasdaq 100 is in line to close the week in the red by 3% or so, and with leadership up for grabs, a wobble in one name can rattle the whole index.
Bitcoin is no exception, having given up 0.9% to $58,809.98. For now, it’s a matter of seeing if better-than-expected earnings can make up for the fact that things are priced in, and how fast the oil story makes its way into the inflation reports. In the meantime, you have to be careful what you buy and not put too much faith in a run-up.
