A tech and chip stock rout deepened Tuesday as mounting fears around a potential AI bubble and concerns that China’s own technology is catching up pushed investors toward other sectors.
The tech-heavy Nasdaq fell 1.2% by approximately 10:10 a.m. ET, while the Dow Jones Industrial Average soared 424 points, or 0.8%. The S&P 500 dipped 0.2%.
Disparities in the stock indexes are a sign that traders are still looking to invest, especially as oil benchmarks plummeted following a pause on US-Iran fighting, but are increasingly wary of the tech industry and whether its massive AI spending will pay off.
American chipmakers like Micron, AMD, Intel, Broadcom and Nvidia slumped 10%, 8.4%, 7%, 1.8% and 1%, respectively.
“Wednesday may be the most important day for markets in recent memory as [Federal Reserve] Chair Warsh will have an opportunity to update investors on the prospects of a rate hike given rising oil prices, and big tech earnings may help shed light on whether or not we are finally seeing a return on investment for the massive amounts of AI spending taking place,” Rick Gardner, chief investment officer at RGA Investments, said in a note Tuesday.
The once-sleepy business for memory chips – which are used in consumer electronics like smartphones and computers – has experienced exponential growth as tech giants buy up troves to power their massive data centers.
The rapid spike in demand has pushed costs higher, raising the price tags on everything from iPhones and laptops to Xbox consoles.
So far this year, Alphabet, Amazon and Microsoft have announced planned capital expenditures of as much as $205 billion, $200 billion and $190 billion, respectively, as tech giants shell out big on their AI ambitions.
But tech investors are panicking that massive spending might not lead to massive returns, potentially causing a bubble to burst in the stock market – similar to the dot-com bubble of the early 2000s, when internet companies nosedived after being overvalued.
Another growing concern for investors is that Chinese tech rivals are nipping at America’s heels – threatening to overtake the US lead in the AI race, even though most Chinese firms have spent much less on the new tech.
On Monday, chipmaker CXMT soared a whopping 466% in its Shanghai stock market debut to become the most valuable company in mainland China – notching a $487 billion valuation after its first day of trading.
Chinese AI firm Moonshot is reportedly seeking a $50 billion valuation in a new fundraising round after it unveiled an open-source model earlier this month with capabilities that it says rival those of US firms Anthropic and OpenAI.
A top White House official has accused the Beijing-based firm of stealing from Anthropic’s most sophisticated large language model, Fable, to help create its latest Kimi K3 bot.
Weeks earlier, Chinese startup Z.ai introduced an AI model that is nearly as advanced as Anthropic’s ultra-powerful Fable and Mythos – and it has already landed on a leaderboard of the world’s 10 most popular bots.
As The Post has reported, experts have been sounding the alarms over the threat cheap Chinese AI models pose to US labs known for charging top dollar for the “tokens” needed to power their chatbots.
