IA has a new crisis and Nasdaq falls more than 6% in a turbulent week

Technology stocks melted again this week, with the Nasdaq recording consecutive drops every day and accumulating a decline of more than 6% in relation to its all-time high set on June 2.

The move followed a sharp sell-off in South Korea, where the Kospi index fell 5.8% on Friday, triggering a circuit breaker that halted trading for 20 minutes.

Investor nervousness reflects growing tension in the sector: valuations of artificial intelligence stocks have been inflated for years based on the promise of the technology rather than concrete profit results.

Demand for AI is not falling - on the contrary, it is expanding rapidly.

The problem is that this explosive growth forces companies to spend and borrow tens of billions of dollars to build and develop the technology, with no immediate results to show.

AI has become an extremely expensive endeavor. Rising demand has driven a data center boom, requiring massive quantities of high-performance chips that semiconductor makers can't produce quickly enough.

This has sent chip prices soaring, creating a kind of K-shaped AI industry: chipmakers' shares soar, while the companies powering AI models sink.

Microsoft and Meta are in a bear market after losing a fifth of their value from their peaks. The remaining members of the so-called Mag 7 group - Amazon, Apple, Google, Nvidia and Tesla - are in correction territory, with drops of at least 10% in relation to recent highs.

The contrast was evident on Thursday: Apple announced it would raise the prices of MacBooks and iPads because of memory shortages, sending its shares down more than 6%.

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Micron, a manufacturer of memory and storage chips, soared almost 16% after publishing exceptional quarterly results, driven precisely by high demand for its semiconductors.

This scenario is also affecting market plans. OpenAI is considering postponing its IPO due to recent volatility, which could make it difficult to achieve the desired valuation of US$1 trillion, as reported by the New York Times.

The technology sector has supported the rise of the stock market in recent years. Despite the current turbulence, the semiconductor industry more than made up the difference, accounting for 19% of the value of the S&P 500.

Still, rising Treasury yields and the possibility that the Federal Reserve will raise interest rates in the coming months could further pressure the sector, which is particularly vulnerable to high credit costs.

If instability in the technology sector turns into a broader sell-off, other sectors of the market will need to sustain overall performance. The good news is that non-technology sectors all ended the week on a high.

And even with its dependence on the tech sector, the S&P 500 is still just over 3% from its all-time high.

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Source: CNN