Nasdaq loses value as AI scrutiny grows
The Nasdaq lost nearly $1tn in value this week as tech stocks fell after disappointing earnings reports from industry leaders. This decline follows a month that saw the exchange lose about $2tn in value. The Nasdaq 100 faces a loss of more than $2tn this month because investors question if billions spent on artificial intelligence can generate returns quickly enough. The index fell more than 5.8% so far in October as the AI trade hit turbulence while hyperscalers Meta Platforms, Alphabet and Amazon raised spending forecasts to expand AI infrastructure. The S&P 500 fell by more than 1% Friday, losing hundreds of billions of dollars in market value, and it remains on track to erase its gains for October despite setting an all-time high earlier this month. This wipeout would amount to slightly more than SpaceX’s entire market value. I find the weakness in the Nasdaq composite, which dropped more than 3%, particularly troubling as it erases hundreds of billions in value.
Weak earnings from big tech companies
Intel tumbled nearly 30%, flirting with its worst day since 1974, even though the chipmaker reported a stronger profit for the latest quarter than analysts expected. Its profit forecast for the final three months of this year fell far short of analysts’ expectations. Alphabet’s stock dropped more than 12% a day earlier, which wiped $500bn from its market capitalization and caused its worst day on record. Alphabet told investors that it burned through more cash during the summer than the spring because of mammoth investments in AI. Amazon fell 1.8% because its summer profit was weaker than analysts expected. Nvidia, which was previously worth about $5tn, dropped 3.1% and pulled the S&P 500 downward more heavily than other stocks. I find the Intel situation particularly grim because its poor profit forecast for the final quarter of this year completely contradicts its recent quarterly profit strength.
Investor anxiety grows over whether hundreds of billions of dollars will produce enough profit and productivity to make AI investment worth it. High interest rates also pressure stocks of computer chip companies and other winners from the frenzy to build AI datacenters. Although the S&P 500 was roughly evenly split between gainers and losers on Friday, the tech sell-off continues to weigh on the market because people around the world feel discouraged about high inflation and high fuel prices. High expectations for US company profits drove the S&P 500 to its record earlier this month.
