U.S. tech stocks faced their "worst week since April," with the "AI eight giants" losing $800 billion in market value in a single week
This week, the Nasdaq Composite Index fell by 3%, marking its worst weekly performance since April. Among them, the market capitalization of eight leading companies most closely associated with AI has evaporated by approximately $800 billion, and the total market capitalization of all AI-related companies in the U.S. has lost nearly $1 trillion in a single week. The market is increasingly concerned about massive AI capital expenditures and industry prospects, leading to a sharp decline in investor sentiment
Amid a series of concerns about high valuations, macroeconomic headwinds, and signals of intensified competition, U.S. tech companies closely related to the artificial intelligence boom faced their worst week since April this year, with investor sentiment significantly cooling.
This week, the Nasdaq Composite Index, dominated by tech stocks, fell by a cumulative 3%, marking its worst weekly performance since April. Among them, the market capitalization of eight leading companies most closely associated with AI evaporated by about $800 billion, and the total market value of U.S. companies related to AI has lost nearly $1 trillion since last Friday.
Behind this sell-off is a general concern in the market about the overvaluation of Silicon Valley tech giants, intertwined with signs of a weakening U.S. labor market and declining consumer confidence that emerged this week. The University of Michigan Consumer Sentiment Index fell to a three-year low in November, further exacerbating market tensions.
At the same time, investor behavior also reflects a cautious attitude. According to analysts at JP Morgan, retail traders, known for buying on dips, chose to sit on the sidelines this week. The bank noted in a report to clients that retail investors reduced their positions after Palantir announced its earnings and took some profits on quantum computing stocks, which had also surged significantly this year.
Valuation Concerns and Macroeconomic Headwinds
As the world's most valuable company, NVIDIA was hit hardest in this week's decline, with its market capitalization shrinking by about $350 billion. Just over a week ago, the company had become the first to surpass a market value of $5 trillion. The stock prices of Microsoft, Oracle, and Broadcom also fell this week.
Concerns about massive capital expenditures in the AI sector are increasingly becoming a focal point for the market. Florian Ielpo, macro head at Lombard Odier Investment Managers, stated:
“The capital expenditures related to AI are enormous and are increasingly being financed through debt, reminiscent of the frenzy over dubious investments during the tech bubble of 2000.”
Data shows that the combined capital expenditures of four tech giants—Alphabet, Amazon, Meta, and Google—reached $112 billion in the third quarter last week. Meanwhile, the entire industry is borrowing hundreds of billions of dollars to support its expansion in AI.
The uncertainty in the macroeconomy adds another layer of shadow to the market. Due to the federal government shutdown leading to missing key economic data, investors are increasingly worried that the labor market may have significantly weakened since the end of September. Mike Zigmont of Visdom Investment Group stated:
“The risk of an economic recession may be quietly rising right under our noses.”
The Chicago Fed's estimated hiring rate fell for the sixth consecutive month in October, and a series of recent layoffs announced by companies such as Amazon, Paramount, and Target have also left investors feeling uneasy Stephen Yiu, Chief Investment Officer of Blue Whale Growth, believes that "hiring has been very weak, and the Federal Reserve is behind the curve and needs to cut rates faster." The fund has heavily invested in NVIDIA, but Yiu also added:
"We do not hold other members of the 'Tech Seven,' and I am very concerned that they are burning cash to stay competitive."
OpenAI's Financial Situation Sparks Market Speculation
The financial situation of leading AI company OpenAI has also sparked new market speculation. This week, comments from OpenAI's Chief Financial Officer Sarah Friar drew attention, as she stated that the $500 billion-valued startup may seek funding "support" from the U.S. government.
This statement caused a stir because OpenAI has secured $1.4 trillion in AI infrastructure commitments through a complex network of deals with chip manufacturers NVIDIA, AMD, Broadcom, and cloud service providers Microsoft, Amazon, and Google. These close ties mean that the expected growth of large tech companies in the coming years is now intertwined with OpenAI's fate.
To quell market anxiety, OpenAI CEO Sam Altman clarified on social media on Thursday that the startup does not want government guarantees and predicts that its revenue will "grow to hundreds of billions" by 2030
