Investors dumped US tech shares as the AI boom started to look less like a gold rush and more like margin-call bait.
According to the Financial Times the Nasdaq Composite fell 1.5 per cent on Thursday as another dose of volatility bounced through the markets. Memory and computer storage outfits took a thumping, with Sandisk, Western Digital and Seagate all down more than nine per cent.
Chipmakers Intel and Micron slid about six per cent, with Chipzilla once again discovering that gravity works. The losses rolled into Asia, where Japanese memory chipmaker Kioxia dropped 16 per cent on Friday.
The Nikkei 225 index fell five per cent. South Korean markets, which have been whacked hardest by the AI trade’s mood swings, were closed.
Futures suggested the Nasdaq 100 and S&P 500 would open down 1.3 per cent and 0.8 per cent on Friday. The sell-off is another sign investors are starting to question the fat valuations slapped on companies sitting in the middle of the AI boom.
It suggests that some traders are unwinding leveraged bets that were swollen by large amounts of debt. JPMorgan strategist Nikolaos Panigirtzoglou said the process still had a way to run.
“The investor deleveraging phase that started in June appears to be still ongoing, and we see more room for deleveraging in leveraged equity ETFs, options and margin accounts, thus acting as a headwind for equities going forward,” Panigirtzoglou said.
Investors watching cheaper Chinese alternatives to groups such as Anthropic and OpenAI are getting twitchy about when US tech groups’ data centre spending will pay off. Chinese AI start-up Moonshot released a large language model late on Thursday with capabilities approaching those of US AI labs.
TSMC reported a 77 per cent jump in quarterly profits on Thursday and said it would spend another $100 billion expanding production in the US. Its Taiwan-listed shares fell more than seven per cent on Friday.
IBM plunged more than 20 per cent on Tuesday after a profit warning caused by customers shifting spending from its systems to AI infrastructure buildouts. The rout was worse than Big Blue’s fall during the Black Monday crash in 1987.
Market insight group Vital Knowledge analysts said: “Tech can’t seem to win, blowouts aren’t sparking rallies and blow-ups are getting crushed.”
SpaceX, a stock treated as a poster child for AI fever since its record $86 billion initial public offering last month, kept sliding. Its shares fell 3.1 per cent to $131.11.
The company listed at $135 but surged to $225.64 as retail investors piled in. Its underwriters, among the cocaine nose jobs of Wall Street, had projected vast revenue growth.
A Goldman Sachs gauge of momentum stocks, which have led the US market, fell six per cent. It has lost a fifth of its value since the start of this month.
Big Tech names spending like loons on data centres for the latest AI models were hit too. Google shares dropped 4.4 per cent, while Amazon fell 1.2 per cent.
Debt issued by “hyperscalers” has taken a knock in recent weeks as investors question their vast borrowing and spending plans.
