This past week was tough for tech stocks, marking their steepest decline since April. On Friday, they dipped again as consumer sentiment plummeted to near-record lows, sparking concerns over spending in the AI sector.
The Nasdaq, which is heavily weighted with tech companies, dropped 0.2% on Friday and saw an overall decrease of 3% for the week. This was the worst drop since President Trump initiated tariffs back in April, which resulted in a significant market downturn.
Consumer sentiment eased to its lowest point in over three years, largely driven by worries about the ongoing government shutdown, which hit its 38th day on Friday, setting a new precedent. The University of Michigan reported a 50.3 reading, reflecting a 6.2% fall from the previous month and almost a 30% drop compared to last year. This reading is alarmingly close to the lowest figures ever recorded.
Alongside the shutdown, inflation remained a pressing issue for many. The cost of daily essentials, from coffee to toys and home furnishings, continues to surge. It’s a tough time for consumers; many are feeling the pinch on their finances.
Joan Hsu, a research director at the University of Michigan, expressed concern, saying, “Consumers are feeling their personal finances being squeezed from a variety of directions. There’s a shared expectation that the job market will stay weak, affecting them personally.”
The last notable decline in consumer confidence regarding public finances and the economy occurred in June 2022, coinciding with soaring inflation rates.
In the investment world, there’s rising anxiety over massive AI investments, leading to questions about whether stocks might be overvalued — reminiscent of the late 1990s dot-com bubble.
This week, Super Micro Computer was a notable underperformer in the S&P 500, witnessing a staggering 25% drop due to its focus on AI data center equipment. Major tech players like Microsoft, Nvidia, AMD, Palantir, Oracle, and Meta collectively lost about $1 trillion in market capitalization.
AMD, Nvidia, and Oracle each experienced declines of roughly 10%, while shares of Meta, which owns Facebook and Instagram, fell around 6%, and Microsoft saw a drop of about 5%.
The sell-off in tech stocks gathered pace earlier this week after Palantir’s earnings report was released. Despite posting higher sales, analysts grew anxious about the company’s inflated valuation, prompting investor Michael Burry to disclose a short position against it. Palantir’s CEO, Alex Karp, dismissed these claims, labeling them as “market manipulation.” Although the stock recovered a bit on Friday, it still suffered a drop exceeding 13% for the week.
Comments from Nvidia’s CEO, Jensen Huang, also fueled investors’ worries when he suggested that China might “win the AI race.” Although he later qualified this statement, stating that “China is nanoseconds behind the US in AI,” it didn’t quell investor fears regarding substantial investments in new technologies.
Even with the Nasdaq closing the week lower, the Dow Jones Industrial Average and S&P 500 saw slight improvements, with the Dow up about 75 points (nearly 0.2%) and the S&P up around 0.1%. Earlier in the week, Trump highlighted his economic policies following significant wins by Democratic candidates in key races across the country.
When asked about concerns regarding a potential AI bubble, Trump replied, “No, I love AI,” asserting that the US is leading both China and the world in this technology.
As the week wrapped up, declines in some tech stocks showed signs of easing, with Alphabet down less than 1% and Apple projected to close the week nearly flat.
