Investors’ sell-off of technology stocks, particularly in the AI sector, caused sharp declines in Asian and US financial markets.

On Wednesday, New York trading saw the S&P 500 drop 2.3%, the tech-heavy Nasdaq fall 3.6%, and the Dow Jones Industrial Average decrease by 1.2%.

Major companies like Nvidia, Alphabet, Microsoft, Apple, and Tesla drove these losses.

Technology companies, especially those focused on AI, have significantly boosted this year’s stock market gains.

Nvidia, a leading AI chip maker and a major AI stock market mover, indicated a 6.8% share drop. Therefore, it has lost about 15% of its value in the past two weeks. The company plans to release its financial results at the end of August.

Tesla, Elon Musk’s electric car manufacturer, experienced shares drop of over 12% following disappointing financial results.

Alphabet, the parent company of Google and YouTube, reported a 5% decrease in its stock price.

Earlier this week, Alphabet announced financial results that surpassed analyst expectations. However, the company also indicated that high spending would continue throughout 2024. Like many of its competitors, Alphabet has invested billions of dollars in the development and adoption of AI technology.

Asia Financial Markets Plummet Amid Tech Sector Declines

In the Asian AI sector, major chip makers such as Renesas Electronics, Tokyo Electron in Japan, and South Korea’s SK Hynix saw substantial declines.

On Thursday morning, Asian shares took a significant hit. Tokyo’s main index dropped over 1,000 points at one stage. Finally, it closed down with a 3% decline, driven by post-Wall Street’s steep downturn pessimism.

Japan’s Nikkei 225 decreased by 3.3% to 37,869.51. Australia’s S&P/ASX 200 fell by 1.2% to 7,870.40. South Korea’s Kospi dropped by 1.8% to 2,707.97. Hong Kong’s Hang Seng declined by 1.9% to 16,985.94, while the Shanghai Composite dipped by 0.6% to 2,883.59.

In the tech sector, Samsung Electronics saw a 1.8% decrease, Nintendo dropped 2.6%, and Tokyo Electron plummeted nearly 5%. The yen’s recent strengthening, rebounding from trading above 160 yen to the dollar earlier this month, negatively impacted some Japanese exporters.

Toyota Motor Corp. shares decreased by 2% during morning trading, while Sony Group’s shares fell by 4%.

Tesla and Alphabet Profit Reports Trigger Major Wall Street Decline

US stock indexes faced their steepest declines since 2022 after disappointing profit reports from Tesla and Alphabet undermined Wall Street’s AI enthusiasm.

Tesla played a significant role in the market’s downturn, plunging 12.3% after reporting a 45% shares drop in spring profits, which fell short of analysts’ expectations.

Tesla’s value on Wall Street extends beyond its electric vehicles to its AI projects, including a planned robo-taxi. UBS analysts, led by Joseph Spak, highlight the difficulty in valuing such ventures due to uncertainties about their success and timelines.

Alphabet also faced challenges as investor tolerance for its extensive AI investments seemed to diminish. Despite posting better-than-expected earnings and revenue for the recent quarter, Alphabet’s stock fell by 5%.

Analysts pointed out weaker-than-expected growth in YouTube’s ad revenue. Moreover, they noted that the stock had surged nearly 50% over the past year. Extremely high growth expectations drove the dynamic.

The Russell 2000 index, which tracks smaller stocks, had enjoyed gains in seven of the previous ten days but dropped 2.1% on Wednesday, July 24. Smaller stocks had been rising due to falling Treasury yields, as investors anticipated that slowing inflation might prompt the Federal Reserve to reduce interest rates in September.

On Wednesday, US Treasury yields showed mixed results after preliminary data indicated a contraction in manufacturing but ongoing growth in service sectors. This data pointed to a “Goldilocks” situation. In this case, the economy remains balanced. Neither overheating to drive up inflation nor cooling to the point of a recession.

Future Trajectory: AI Stock Price Prediction

In other US stocks, Super Micro Computer Inc. experienced a significant drop of 9.15%.

Meta Platforms saw its stock price decrease by 5.6%, Microsoft Corp. experienced a 3.6% decline, and Apple’s shares dipped 2.9%.

This sell-off caused Bloomberg’s index of the “Magnificent Seven” tech stocks to fall by 5.9%, marking the first time it dropped below its 50-day average since May.

Despite the momentary decline, the market index has risen by 33% since the beginning of the trading session.

Microsoft Corp. will report its financial results on July 30. Following this, Meta Platforms Inc., Apple Inc., and Amazon.com Inc. will announce their earnings later in the week. Nvidia, a key player in AI investments, will be the last to report, with its results scheduled for August 28, as noted by Bloomberg.

Currently, the overall sentiment remains positive. The combined market capitalisation of the five leading AI companies—Microsoft, Apple, Nvidia, Alphabet, and Amazon—stands at approximately $12.7 trillion. Back in 2023, analysts predicted that the sector would approach a market cap of $25 trillion by 2030. With the pragmatic approach of the market movers, the goal seems entirely achievable.