AI Stocks Plunge as Recession Fears and Doubts on Investment Returns Hit Wall Street

On Monday, artificial intelligence (AI) stocks, which have been a significant driver of market gains in 2024, experienced a sharp decline. The drop occurred as fears of a U.S. recession triggered a global sell-off on Wall Street, and doubts emerged about the return on investment for AI spending. This decline in AI stocks followed a disappointing jobs report from July, which intensified recession concerns and raised worries about the Federal Reserve’s approach to interest rate cuts.

The negative sentiment towards AI stocks was exacerbated by the broader market’s reaction to economic uncertainties. Investors, adopting a risk-averse stance, began offloading high-valuation AI stocks.

Jay Woods of Freedom Capital Markets commented that while demand for AI technology remains, the extraordinary price increases of these stocks were unsustainable. The current situation reflects a market correction influenced by external economic factors.

Companies like Nvidia and Super Micro Computer saw substantial losses, with Nvidia falling 7% and Super Micro Computer declining 2%, though both had earlier experienced drops of up to 14%.

Nvidia’s stock was more than 30% below its recent highs, and Super Micro Computer had lost over half of its value. The overall semiconductor sector also suffered, with the VanEck Semiconductor Index dropping 3% and continuing a previous decline of 5.5%.

The sell-off extended to major technology companies. Alphabet, Meta Platforms, and Microsoft all experienced declines of more than 2%, while Tesla dropped 4%, and Amazon and Apple also saw losses.

\Notably, Warren Buffett’s Berkshire Hathaway had significantly reduced its stake in Apple, contributing to the market’s bearish sentiment. The Roundhill Magnificent Seven ETF, which tracks leading tech stocks, fell over 3%.

Additionally, recent earnings reports have raised doubts about the speed at which AI investments will start to pay off. UBS strategist Maxwell Grinacoff noted that the anticipated benefits of AI are faltering, with growing concerns about the timeline for monetization and increasing concentration risk in related sectors. Compounding these issues,

Nvidia’s delay in releasing a new AI chip, as reported by The Information, could impact major clients like Meta Platforms and Microsoft, further affecting investor confidence.