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US tech stocks fell on Thursday on renewed concerns of a possible bubble in AI tech spending, though the decline stalled in afternoon trading after progress on US-Iran nuclear talks tamped down oil prices.
Wall Street’s tech-heavy Nasdaq Composite index closed 1.2 per cent lower, while the broader S&P 500 dropped 0.5 per cent.
The Nasdaq had fallen by as much as 2.1 per cent earlier in the day as Nvidia earnings failed to calm investors’ jitters about the sector. The company’s fourth-quarter earnings, released after the market closed on Wednesday, showed stronger than expected revenues and surging profits, prompting shares to initially rise in after-hours trading.
However, investors soon grew more nervous as the company’s “conference call offered limited detail on the revenue outlook”, said Jim Reid, global head of macro research at Deutsche Bank, and the share price dropped sharply once trading began in New York.
Mike Zigmont, co-head of trading at Visdom Investment Group, said the market seemed to be realising that “maybe the super lucrative appreciation phase of this AI investment story is now over . . . there won’t be the eye-popping returns of the past couple of years, so I think you’ve got people bailing out”.
US stocks have suffered a series of sell-offs in recent weeks as concerns over megacap tech groups’ high spending on the AI build-out collided with fears that the technology could disrupt entire sectors, including software, wealth management and freight and logistics.
One of the victims of the recent sell-off, computer maker Dell, recovered ground on Thursday after announcing earnings and a forecast that came well ahead of Wall Street estimates. The company credited “soaring demand” from AI data centres, sending its shares up 12 per cent after hours.
The hardware company, historically best known for its PCs, is also a key partner for Nvidia, whose popular AI chips Dell integrates into servers.
The positive reaction to Dell’s earnings failed to break through the gloom surrounding other tech stocks.
“There is a lot of confusion right now,” said Mika Kastenholz, global head of investment solutions at LGT Private Banking.
A single catalyst such as Nvidia’s earnings was not ultimately enough to overturn the “multiple pockets and sources of uncertainty” — stemming from tech spending, AI disruption fears and broader geopolitical upheaval — affecting US stocks.
The Nasdaq Composite’s recent record high was at the end of October, but subsequently rallies have been curbed as concerns about vast capex spending plans gripped investors.
Dan Hanbury, portfolio manager at asset manager NinetyOne, said: “What is weighing heavy on investors’ minds is how Nvidia can maintain its phenomenal growth rate now its core customers — the hyperscalers — are mostly depleting their cash flows [by] spending on AI-related capex.”
But the sell-off faded in afternoon trading in New York after Oman’s foreign minister, who was mediating the talks between the US and Iran over Tehran’s nuclear programme, said that “significant progress” had been made. Brent crude oil prices jumped as much as 2.5 per cent higher earlier in the day, the highest level since July, before retreating to settle 0.1 per cent lower at $70.75 a barrel.
The drop in oil prices helped put a floor under many share prices, though Nvidia finished Thursday’s session 5.4 per cent lower. Other chipmakers also fell, with Broadcom down 3.2 per cent and Amsterdam-listed chip giant ASML dropping 4.3 per cent.
Shares in groups that have been benefiting from the build-out in AI infrastructure also fell. Lam Research and Applied Materials were each down more than 4 per cent, while server provider Super Micro Computer dropped 3.9 per cent. Memory groups Western Digital and Seagate Technology were each down almost 3 per cent.
“The debate has shifted away from near-term results and towards the sustainability of AI capex spending,” said Richard Clode, a tech portfolio manager at Janus Henderson.
Nvidia’s share price has struggled for momentum in recent months, while positive earnings revisions mean the company is now trading at “a significant discount to AI peers”, Clode continued.
Frank Lee, global head of tech hardware and semiconductor research at HSBC, said that while Nvidia’s results had beaten “even our bullish expectations”, there was a lack of “new narratives” about growth areas for the business.
Meanwhile, software stocks rallied on Thursday after coming under sustained pressure in recent weeks. Salesforce chief executive Marc Benioff has dismissed concerns of an AI-induced “SaaS-pocalypse” hitting the sector, even though the group’s outlook undershoot analyst expectations when it reported on Wednesday.
Salesforce, Gartner, Workday and CrowdStrike all closed more than 4 per cent higher.
Additional reporting by Michael Acton in San Francisco
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