Technology stocks suffered a painful reckoning this week as investors who stayed all-in on the AI trade watched the companies at its center tumble. A three-week rout, driven by growing anxiety over whether the technology will generate profits large enough to justify a debt-fueled investment boom, reached its peak on Friday, when the Nasdaq 100 Index fell 3.5%, its deepest slide since early June.
Intel Corp. dropped 29%, the most in over four decades, after a weak sales forecast dragged down other chipmakers such as Nvidia Corp. and Broadcom Inc. Amazon.com Inc. and Alphabet Inc. also fell after sticking with aggressive AI spending plans even as their core businesses cooled. As losses accelerated through the day, the other major indexes followed, sending investors toward the market's traditional havens.
Eric Beiley, executive managing director of wealth management at The Beiley Group at Steward Partners, said the swings were unsettling. "Investors are growing nervous over whether AI spending will actually pay off," he said. Past tech declines had rewarded buy-the-dip strategies as chipmakers bounced back, but that has not happened since the Nasdaq 100 began its current slide early this month. Rising interest rates have squeezed companies and amplified doubts about AI-driven profits, reviving diversification strategies that were sidelined during the rush into tech. Treasuries, investment-grade bonds, defensive equities and commodities together posted their best monthly return since late 2020.
Momentum traders have felt the pain most sharply. Hedge funds lost 3.3% during the month through last Friday, with long-short funds suffering their worst performance relative to the market since early 2021, according to JPMorgan Chase & Co. A portfolio allocating 60% to stocks and 40% to bonds returned more than 1%, while utilities and consumer staples each jumped more than 10% in October.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing