Over the past month, technology stocks have been under intense pressure, driven by disappointing earnings reports and a general risk-off sentiment in global markets. As investors reassess their portfolios, many have been pulling back from artificial intelligence (AI) stocks, shifting their investments towards sectors poised to benefit from lower interest rates, such as real estate and utilities.
On Wall Street, several high-profile tech stocks have experienced substantial declines. The so-called “Magnificent Seven” — including Microsoft, Nvidia, Amazon, and Alphabet — have each fallen more than 10% over the past month, entering correction territory. In contrast, Meta Platforms was the only tech giant to outperform the S&P 500, recording a modest 1% gain. Tesla, however, has seen a 17% drop, driven by a continuing slowdown in electric vehicle sales.
In Europe, the technology sector has also been hit hard. ASML, the continent’s largest technology firm and a key player in the semiconductor industry, saw its shares plummet by 20% over the past month. ASML’s decline mirrors the global trend and is largely attributed to stricter US export restrictions on semiconductor chips destined for China. Despite reporting strong quarterly earnings in July, ASML’s guidance for the current quarter fell short of expectations, reflecting potential adverse impacts from the export curbs.
The downturn is not confined to Europe; AI-related stocks in Asia have similarly suffered significant losses. This shift highlights a broader reallocation of investment as global economic conditions evolve.
Research firm FactSet has noted that the market is increasingly punishing companies with negative earnings surprises and rewarding those with positive surprises less than usual. This trend underscores a heightened scrutiny of earnings growth, especially among fast-growing AI companies.
Several major tech companies have reported slowing earnings growth for the second quarter, attributing the deceleration to capacity constraints, rising capital expenditure on AI infrastructure, and a slowing Chinese economy. Microsoft, for example, highlighted capacity constraints as a significant factor limiting its cloud growth, a critical component of its overall performance.
As the tech sector navigates these challenges, investors are likely to continue scrutinizing earnings reports closely, adjusting their strategies in response to evolving economic and market conditions.
