As tech stocks tumble, investors told CNBC on Thursday that something fundamentally may be breaking down in the AI industry following Democrats’ huge success in Tuesday’s midterm elections and their threats to slow data center construction.
Democrats are more aggressively anti-data center advocates than Republicans, and Wall Street is quickly recalculating how the restrictions they introduce will affect the future growth of the companies involved.
“Investors are now questioning the $1.2 trillion in capital spending we expect for next year,” Peter Boockvar, chief investment officer at One Point BFG Wealth Partners, told CNBC. “Well, that might not happen.”
Boockvar believes this could be the beginning of the end for AI trading as we know it.
Whether it’s completely over or not, investors need to reevaluate how they intend to approach AI trading going forward, analysts said.
of Nasdaq Composite The stock fell 5% on Thursday, dropping more than 11% from its all-time high hit last month and into correction territory. of iShares Semiconductor ETF It fell 11% on Thursday, the biggest decline since the coronavirus outbreak in March 2020. Global X Artificial Intelligence & Technology ETF (AIQ) It’s down 6% on the day and 15% over the past month.
“There’s been a big shift in the outlook for AI infrastructure,” Eric Johnston, head of equities at Cantor Fitzgerald, told CNBC. “The overall economy, consumer and revenue growth will all be leveraged into its development.”
Thursday’s selloff spilled over into non-AI stocks, with the Dow Jones Industrial Average dropping more than 1,600 points.
Josh Brown pointed to the 4.8% yield on the 10-year U.S. Treasury and said attractive risk-free rates are making investors reconsider taking risks in these volatile AI stocks.
“You don’t need to own 80% U.S. stocks, and you don’t need 60% of that exposure to be in tech stocks,” Brown said.
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Many investors believe that AI trading is not completely over and that investors simply need to become more selective.
“Building AI is becoming increasingly difficult,” said Rob Sechan, founder and managing partner of Newedge Capital Group.
“Nobody voted to make computing less scarce,” Sechan said, noting that Microsoft’s Azure cloud business grew 48% year over year in the most recent third quarter. This level of growth suggests capacity is constrained rather than demand constrained, he said.
“The harder it becomes to build new capabilities, the more valuable existing capabilities become,” Sechan said.
Richard Claude, portfolio manager at Janus Henderson, said Thursday there are some bright spots in the tech industry despite the highly correlated downturn in the major tech indexes.
”motorola solutions “We’ve had some good results,” he said, adding, “We’re seeing a little bit of rotation in some Internet names…Sony reported some good results and again had a big overnight rally.”
“So there’s some respite from this situation, but it’s obviously been pretty painful overall today,” he said.
Some experts believe the sell-off may be so extreme that investors may start picking at stocks.
Larry Adam, chief investment officer at Raymond James, said the “indiscriminate selling” was a “buying opportunity.” He urged investors to look at fundamentals, saying, “If you take a long-term view, which we do, I think valuations at today’s levels tend to be good buying opportunities.”
Victoria Green, chief investment officer at G Squared Private Wealth, said she sees strong support near the S&P 500’s 200-day moving average and is keeping an eye on the market’s rebound after Thursday’s selloff.
“Typically, the average next-day return is about 180 basis points plus,” he said. “The question we have to ask ourselves is, is this a reversal of the uptrend, which I believe is the case? Or is this something that will eventually go off the rails and everyone will just need to buy Treasury bills? I don’t think we’re there yet.”
