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US tech stocks fell, with indices weighed down by Nvidia and several of its suppliers, after the chip group’s blockbuster earnings did little to calm investors’ jitters about a possible bubble in AI tech spending.
Wall Street’s tech-heavy Nasdaq Composite index was down 1.9 on Thursday afternoon, while Nvidia had dropped 5.3 per cent. The broader S&P 500 was 1.1 per cent lower.
Nvidia’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.”
Stocks have suffered a series of sell-offs in recent weeks as concerns over mega caps’ 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.
“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.”
Other chipmakers also dropped alongside Nvidia. Broadcom was down 6.7 per cent in afternoon trading and Amsterdam-listed chip giant ASML closed 4.3 per cent lower.
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 5 per cent, while server provider Super Micro Computer dropped more than 6 per cent. Memory groups Western Digital and Seagate Technology were down 5.7 per cent and 4.9 per cent, respectively.
“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 was up 2 per cent in Thursday afternoon trading, while Gartner, Workday and CrowdStrike all added more than 2 per cent.
