A major technology stock selloff stretched into a second day Tuesday as investors questioned whether artificial intelligence will generate the profits that have fueled lofty valuations for companies such as Alphabet, SpaceX and Nvidia.
Around noon ET, the tech-heavy Nasdaq Composite was down 409 points, or 1.6%, to 25,758. The decline marks a second day of losses, with the Nasdaq closing 1.3% lower on Monday.
“Today’s big falls in tech stocks without any major catalyst are another illustration of rising volatility in these stocks, a result of what increasingly looks like frothy earnings expectations and/or valuations,” James Reilly, senior market economist with Capital Economics, said in a note to clients.
The drop in tech stocks in recent weeks has put industry stalwarts such as Meta Platforms and Microsoft in “bear” market territory — when a company’s shares drop at least 20% for their most recent peak — Reilly added.
“If the new market leaders, semiconductor firms, also start to struggle, the stock market would be in big trouble,” he said.
The S&P 500 sank 1%, while the Dow Jones Industrial Average rose 43 points, or 0.1%, to 51,756.
For months, Wall Street has embraced tech stocks, helping drive the market to record highs on optimism that companies pouring billions into AI would translate those investments into faster revenue growth and higher profits. Investors are now demanding more evidence that the spending will pay off.
On Tuesday, several of the stocks that have powered the market’s rally came under pressure as skepticism grew.
“For a long time, the market treated AI spending as unquestionably positive,” Nigel Green, CEO of the financial consultancy deVere Group, said in an email. “Investors are now becoming more demanding. They want evidence that unprecedented spending will translate into unprecedented profits.”
SpaceX shares rebounded after falling in early trading, rising $8.81, or 5.7%, to $163.41 after plunging 16% Monday.
Earlier this month, investors piled into the stock after the company’s initial public offering, sending it above $200 within days. The stock, however, has slumped since June 17 as investors fret over whether the company can justify its valuation of more than $2 trillion.
Global effects
The tech rout spread beyond the U.S., with South Korea’s Kospi tumbling 10.0% to 8,203.84. Signs of greater regulatory scrutiny in the country’s semiconductor sector also added to the hand-wringing.
Bret Kenwell, a U.S. investment and options Analyst at eToro, told CBS News that a broader weakness and global volatility in tech stocks is weighing on U.S. shares. During midday trading on Tuesday, chipmaker Nvidia fell 2.8%, while Broadcom tumbled 2.3%. Alphabet, part of the Magnificent Seven, also came under pressure, falling 1.1%.
