A bruising week for technology stocks has raised fresh questions about whether the artificial intelligence-fuelled market rally is becoming too volatile for comfort.
A selloff that began on Monday gathered momentum throughout the week, rippling through markets from Seoul to Silicon Valley.
Investors grew uneasy about the sheer scale of spending on AI infrastructure, the increasing reliance on debt financing and the prospect of higher interest rates.
Apple’s price hike added to the concerns, raising fears that the AI rally could ultimately prove inflationary for the broader economy.
South Korea’s benchmark KOSPI index, which has almost doubled this year, plunged as much as 10% in a single session on Tuesday, before bouncing back, but ended Friday again down 5.8%, posting a weekly loss of 6%, its steepest decline since early March, when the Iran conflict unsettled global markets.
In the United States, the tech-heavy Nasdaq index closed 2.2% lower on Tuesday.
A strong set of earnings from memory-chip maker Micron Technology on Wednesday initially helped stabilise sentiment; however, the recovery proved short-lived, with the market’s mood deteriorating again after Apple announced on Thursday that it was raising prices on iPads and MacBooks in response to soaring memory and storage costs.
Apple AAPL shares fell more than 6% overnight, leading to renewed weakness in Asian markets on Friday. However, the stock recovered on Friday.
US markets opened lower on Friday. Nasdaq Composite was down another 0.95% on Friday. The S&P 500 slipped 0.6%.
“The hand to mouth tech rally has come to an abrupt halt at the end of the week. After Thursday’s recovery rally on the back of Micron results, which caused the stock price to soar by 15%, a dearth of good news is weighing on the sector and the entire AI narrative,” Kathleen Brooks, research director at XTB, said.
SpaceX bond sale, Fed rate hike expectations ignited concerns
The trigger for the market turbulence early in the week was widely seen as SpaceX’s decision to launch a major bond offering only days after its stock market debut.
The move revived worries that technology firms may be spending too aggressively and that the investment boom surrounding artificial intelligence is becoming increasingly dependent on borrowing.
The concerns are particularly acute because the world’s biggest technology companies have committed extraordinary sums to AI.
Alphabet, Amazon, Microsoft, Meta and Tesla have all pledged hundreds of billions of dollars to expand computing infrastructure and build out AI capabilities, even as investors continue to seek clearer evidence of future returns.
The hyperscalers together are estimated to spend more than $700 billion in 2026 on AI-related capital expenditure.
Investor anxiety has also been amplified by expectations that the Federal Reserve could take a more aggressive stance on interest rates as inflation remains elevated.
Micron briefly restored confidence before Apple triggered another selloff
A strong set of earnings from memory-chip maker Micron Technology initially helped stabilise sentiment.
Micron, the only US-based producer of high-bandwidth memory chips used alongside Nvidia’s AI processors, reported robust demand and disclosed that customers had committed $22 billion to secure supplies of memory chips.
The results temporarily eased fears about demand and reinforced confidence in AI-related spending.
However, the recovery proved short-lived.
The market’s mood deteriorated again after Apple announced on Thursday that it was raising prices on iPads and MacBooks in response to soaring memory and storage costs.
Micron shares shed 2.4% in trading on Friday after jumping more than 15% in the previous session.
Apple shares had fallen by 6% on Thursday.
The move highlighted an increasingly uncomfortable possibility for investors: that the AI boom may be inflationary rather than deflationary.
Chris Beauchamp, chief market analyst at IG, said “a battalion of worries” was driving the market lower.
“Apple and Microsoft’s price rises have struck at the market’s fear of inflation, raising worries that, far from being deflationary, the AI boom might be inflationary, particularly for the hard-pressed consumer, hurting rather than aiding economic growth.”
OpenAI delay weighs on sentiment
Investor confidence was also dented by reports that OpenAI may delay its public listing until next year.
“This move would be heavy with symbolism given the company essentially kicked off the whole AI theme in earnest with the launch of ChatGPT in 2022,” said Danni Hewson, head of financial analysis at AJ Bell.
Beauchamp noted that the reported delay reflected broader concerns over market conditions.
“Meanwhile, OpenAI seems to have little stomach for market volatility either, reportedly put off by SpaceX’s travails. Having piled in to AI and tech since the end of March, there is a desire to protect profits, and investors continue to be in a mood to sell first and ask questions later.”
Investors rotate away from technology stocks
The volatility prompted investors to pull money from US equities for the first time in three months.
According to Bank of America, citing EPFR Global data, US equity funds saw withdrawals of $8.5 billion during the week through June 24.
Technology funds led the exodus, recording a record $9.3 billion in outflows.
The reversal was striking because tech funds had attracted an unprecedented $19.2 billion in the previous week.
Overall equity funds suffered $5 billion in withdrawals, while money market funds lost $25.5 billion.
Investors instead moved into fixed-income products, which absorbed $16.6 billion.
“With valuations elevated and the Fed maintaining a cautious stance, investors are becoming increasingly discerning about where they deploy capital,” said Daniela Hathorn, senior market analyst at Capital.com.
A rotation within the equity market is also becoming increasingly apparent.
Some of the weakest performers on the S&P 500 this week were companies most closely associated with the AI trade, including Palantir and Oracle, which fell 18% and 16%, respectively.
Several members of the Magnificent Seven, including Microsoft, Alphabet, Apple and Nvidia, also declined.
Meanwhile, value-oriented sectors have begun to outperform.
Industrials, real estate, consumer discretionary, energy and healthcare stocks all outperformed technology shares, with healthcare emerging as the strongest-performing sector this week, rising by more than 4%.
For now, investors appear increasingly willing to question the lofty assumptions underpinning the AI trade, marking a sharp change in sentiment after months of relentless optimism.
The post From SpaceX to Apple: how the tech-led AI rally suffered many blows this week and why appeared first on Invezz
