Big Tech AI spending drags Wall Street stocks down
The Nasdaq Composite has slumped more than 7.5 per cent since its October 6 peak amid concerns over artificial intelligence investment returns.
Wall Street is facing an inflection point regarding the artificial intelligence (AI) trade as massive spending by Big Tech companies drags stocks down, according to a report by Mint. Since the Nasdaq Composite hit a record peak on October 6, the index has fallen more than 7.5 per cent and is approaching a 10 per cent correction.
The PHLX Semiconductor index, known as the Sox, has tumbled nearly 28 per cent since its late June high and is in a bear market. Additionally, the technology sector of the S&P 500 closed on Friday with an 11.1 per cent slump from its early October peak.
Analysts attribute these losses to mixed earnings from Alphabet, Meta Platforms, Microsoft, and Amazon, rising capital costs, and uncertainty regarding whether AI spending will generate earnings. Claudio Irigoyen, head of global economics research at BofA Global Research, said investors are concerned about whether firms can monetise investments.
The sector has seen $655 billion in new borrowing this year. Companies are turning to equity markets for capital, such as Meta Platforms, which announced a $95 billion equity raise last month, and Oracle, which plans a $20 billion bond plan and $10 billion stock sale.
While Deutsche Bank raised its sector rating to Overweight on Friday, citing an attractive entry point, Melius Research's Ben Reitzes warned of an inevitable slowdown due to heavy borrowing. Charu Chanana, chief investment strategist at Saxo Bank, noted there is still limited evidence of measurable productivity gains across the wider economy.