Investor enthusiasm for artificial intelligence (AI) weakened on Wednesday, sparking a $1 trillion drop in the Nasdaq 100 Index.
Nasdaq indexes fell more than 3%, marking the worst performance since October 2022. Semiconductor giants such as Nvidia, Broadcom and Arm Holdings led the decline.
The selloff followed Alphabet’s weak earnings report, which featured high capital spending and led to the company’s stock falling more than 5%.
Tesla also suffered, falling more than 12% after CEO Elon Musk provided limited details about its self-driving car initiative. Concerns have also emerged about the return on AI infrastructure spending, with it thought that while the investment is significant, the return will take time.
Nvidia’s options volatility rose to the highest level since March and Broadcom’s put options hit a three-month high. This stir follows the recent shift away from technology stocks to small-cap stocks triggered by expectations of a Federal Reserve interest rate cut.
Artificial intelligence computing hardware makers saw significant declines: Super Micro Computer fell 9.15%, Nvidia dropped 6.8% and Broadcom fell 7.6%. Large technology companies such as Meta Platforms, Microsoft and Apple also declined by 5.6%, 3.6% and 2.9% respectively.
Some analysts view the decline as a temporary correction rather than a fundamental change.
JPMorgan Chase CEO Jamie Dimon recently raised concerns about the U.S. economy, citing the potential impact of inflation and increasing deficits.
Goldman Sachs strategists, led by Christian Müller-Glissmann, are forecasting greater resilience in the U.S. stock market than many investors expect, suggesting a low probability of a severe recession.
Recent indicators suggest that the U.S. may avoid a recession in 2024, reversing earlier concerns.
US inflation fell to 2.5% in August, setting the stage for the Federal Reserve to consider cutting interest rates at its meeting next week.