The Nasdaq 100 Index dropped into correction territory as investors shifted away from major technology stocks that previously fueled market gains. The index fell 0.8% and is now over 10% below last month's peak. Nvidia, Amazon, and Microsoft were notable losers, with Nvidia alone accounting for a significant portion of the decline. Despite strong earnings reports, a lack of expected growth coupled with scrutiny over inflated equity multiples has led to increased skepticism around big tech's continued investment in AI, calling into question the sustainability of their high valuations.
Over the past few years, the Magnificent Seven have done exceptionally well, and they deserved the premium they were trading at because of how well they were growing their top and bottom lines, said George Cipolloni, a portfolio manager at Penn Mutual Asset Management.
Earnings were pretty good for big tech this past quarter, but I'm not sure they'll get much better from here, and there's only so much a company can grow at these multiples.
While investors remain broadly optimistic about the long-term potential of AI, this earnings season failed to show the kind of growth or profitability many investors had hoped for.
That has sort of changed. There are new questions about big tech's strategy of pouring tens of billions of dollars into AI-related expenditures with little to show so far.
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