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US tech stocks fell on Thursday as Nvidia’s blockbuster earnings failed to calm investor jitters about a potential bubble in AI spending.
Wall Street’s tech-heavy Nasdaq Composite index fell 1.2 percent Thursday morning, with chipmakers falling 4 percent. The broader S&P 500 was 0.6 percent lower.
Nvidia’s fourth-quarter earnings, released after market close on Wednesday, showed stronger-than-expected revenue and profit growth, prompting shares initially to rise in after-hours trading.
However, investors soon became more nervous as the company “offered limited details on its revenue outlook in the conference call”, said Jim Reed, global head of macro research at Deutsche Bank, and the share price fell sharply after trading began in New York.
Mike Zygmont, co-head of trading at Wisdom Investment Group, said: “Maybe the super attractive appreciation phase of this AI investment story is over now… The attractive returns of the last few years won’t be there, so I think you’ve got a reprieve for people.”
Tech stocks have suffered a series of selloffs in recent weeks as concerns over mega-caps’ high spending on AI build-outs mounted, as well as fears that the technology could disrupt entire sectors from software to wealth management.
Dan Hanbury, portfolio manager at asset manager NinetyOne, said: “What is weighing heavily on investors’ minds is how Nvidia can maintain its unprecedented growth rates, now that its core customers – hyperscalers – are squeezing their cash flow mostly by spending on AI-related capex.”
Along with Nvidia, other chip makers also dropped out. Broadcom fell 6.5 percent in Amsterdam and Dutch chip giant ASML fell 4.4 percent. Memory chips also suffered losses, sending Super Micro Computer and Western Digital down more than 5 percent.
“The debate has shifted from near-term outcomes to the sustainability of AI capex spending,” said Richard Clode, tech portfolio manager at Janus Henderson.
Nvidia’s share price has struggled for momentum in recent months, while positive earnings revisions mean the company is now trading at “a significant discount to AI peers,” Clode said.
Frank Lee, global head of tech hardware and semiconductor research at HSBC, said that although Nvidia’s results beat “even our bullish expectations”, there was a lack of “new narratives” about growth areas for the business.
Meanwhile, software stocks rose on Thursday after being under constant pressure in recent weeks, despite Salesforce’s revenue falling short of analysts’ expectations when it reported on Wednesday.
Salesforce rose 3 percent, while Gartner, Workday, Intuit and CrowdStrike all rose more than 5 percent.
