Tech stocks await AI's real reckoning
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By John Foley
NEW YORK, Aug 7 (Reuters Breakingviews) -The artificial intelligence boom was big on the way up, and it has already been big on the way down. A selloff in technology stocks wiped around $3 trillion of paper wealth from the industry in under a month. The rout looks more driven by feelings and flows than facts. If that changes, a harder reset is possible.
Tech firms added $5 trillion of market value in the first six months of 2024, based on the 30% rise in the 416 stocks comprising the FR US Technology Index.Those handy gains made tech an easy place to sell if nerves got tested. And they roundly did, due to political shocks, a Japanese interest-rate shift, and rising U.S. unemployment. Between July 10 and Aug. 5, the CBOE Market Volatility Index .VIX tripled.
What hasn’t deteriorated is the market’s view of companies’ performance. Nvidia NVDA.O, maker of the chips powering AI giants’ efforts, lost one-fifth of its market value since July 10, even as estimates of next year’s earnings rose. That’s the case elsewhere, too: analysts expected S&P 500 tech firms’ earnings to increase 21% in 2025, as of Aug. 6 – more than the 19% predicted in April. Instead, it’s the multiple on which investors value those earnings that has come down. Citigroup strategists estimated in June that only one-third of AI-related stocks’ gains in the year to date came from rising profit estimates. Air is now being let out of overinflated tires.
Still, expectations change. AI is dominated by companies making huge investments for uncertain payoff. While Meta Platforms' META.O 22% increase in ad sales last quarter suggests the recipe is working, that’s a tiny sliver of the eventual promised bounty. Getting the rest of the way requires a lot of cash: A Morgan Stanley analysis shows that 8 of the top companies investing in AI will plow $380 billion into capital expenditures in the next two years – 50% more than in the previous three. For Nvidia and its kin providing them the tools, that’s great: Meta’s Llama 4 AI model may use 10 times the computing power of its predecessor, says CEO Mark Zuckerberg.
The size of the prize itself is also up for grabs. AI could add nearly $18 trillion to the global economy, Accenture reckons. McKinsey has identified $4.4 trillion of productivity gains. But these are just assumptions; facts are yet to come in. Executives at Meta and Alphabet GOOGL.O have conceded that it’s better to spend too much too soon than too little too late. That leaves room for volatility - and further upsets.
Follow @johnsfoley on X
CONTEXT NEWS
The fall in U.S.-listed technology shares erased over $3 trillion of market capitalization between July 10 and Aug. 6, based on the performance of the FR United States Technology Index, which contains 416 stocks.
Alphabet, Amazon.com and Microsoft all fell the day after reporting their earnings, while Facebook owner Meta Platforms’ shares rose just under 5%.
Over three-quarters of tech firms in the S&P 500 Index had beaten analysts’ expectations for earnings in their second-quarter earnings as of Aug. 6, according to LSEG. Of the 67 in the index, 19 had yet to report.
Graphic: Tech valuations have eased, not crashed https://reut.rs/3yreXWd
Editing by Jonathan Guilford and Sharon Lam
Aset Berkaitan
Berita Terkini
Penafian: Entiti XM Group menyediakan perkhidmatan pelaksanaan sahaja dan akses ke Kemudahan Dagangan Atas Talian, yang membolehkan sesorang melihat dan/atau menggunakan kandungan yang ada di dalam atau melalui laman web, tidak bertujuan untuk mengubah atau memperluas, juga tidak mengubah atau mengembangkannya. Akses dan penggunaan tersebut tertakluk kepada: (i) Terma dan Syarat; (ii) Amaran Risiko; dan Penafian Penuh. Oleh itu, kandungan sedemikian disediakan tidak lebih dari sekadar maklumat umum. Terutamanya, perlu diketahui bahawa kandungan Kemudahan Dagangan Atas Talian bukan permintaan, atau tawaran untuk melakukan transaksi dalam pasaran kewangan. Berdagang dalam mana-mana pasaran kewangan melibatkan tahap risiko yang besar terhadap modal anda.
Semua bahan yang diterbitkan di Kemudahan Dagangan Atas Talian kami bertujuan hanya untuk tujuan pendidikan/maklumat dan tidak mengandungi – dan tidak boleh dianggap mengandungi nasihat kewangan, cukai pelaburan atau dagangan dan cadangan, atau rekod harga dagangan kami, atau tawaran, atau permintaan untuk suatu transaksi dalam sebarang instrumen kewangan atau promosi kewangan yang tidak diminta kepada anda.
Sebarang kandungan pihak ketiga serta kandungan yang disediakan oleh XM, seperti pendapat, berita, penyelidikan, analisis, harga, maklumat lain atau pautan ke laman web pihak ketiga yang terdapat dalam laman web ini disediakan berdasarkan "seadanya" sebagai ulasan pasaran umum dan bukanlah nasihat pelaburan. Sesuai dengan apa-apa kandungan yang ditafsir sebagai penyelidikan pelaburan, anda mestilah ambil perhatian dan menerima bahawa kandungan tersebut tidak bertujuan dan tidak sediakan berdasarkan keperluan undang-undang yang direka untuk mempromosikan penyelidikan pelaburan bebas dan oleh itu, ia dianggap sebagai komunikasi pemasaran di bawah peraturan dan undang-undang yang berkaitan. SIla pastikan bahawa anda telah membaca dan memahami Notifikasi mengenai Penyelidikan Pelaburan Bukan Bebas dan Amaran Risiko mengenai maklumat di atas yang boleh diakses di sini.
