Fears over AI market slow impact global tech stocks

Global tech stocks took a hit as concerns about the sustainability of the AI boom and the prospect of rising interest rates weighed heavily on markets. Asian equity markets closed significantly lower, driven by fears that a stronger-than-expected rise in U.S. inflation could prompt the Federal Reserve to hike interest rates later this year. Such a move would increase the cost of investments for high-growth companies, including those in the artificial intelligence sector.

In Asia, major technology indices in Japan and South Korea reported losses of around 5% and 7.5% respectively. In the United States, the Nasdaq index had fallen by nearly 2% on Wednesday. The German DAX index also felt the pressure from the tech sell-off, opening over half a percent lower at 25,145 points. Despite a lower proportion of chip stocks in the index, and some relief from the oil and bond markets, investors were rattled. Shares in notable German tech firms, Infineon and Aixtron, both dropped about 9%.

Portfolio manager Thomas Altmann of QC Partners noted the intensity of the sell-off, characterizing the activity not as routine profit-taking but as a legitimate concern over a potential significant correction. "This is not classic profit-taking. The pace of the sell-off is too fast for that," he remarked, emphasizing the severe position investors found themselves in.

Investors' trepidation centered around the high valuations that technology stocks have maintained, which are being increasingly scrutinized in light of rising borrowing costs. Higher interest rates translate to increased financial burdens, influencing investor sentiment towards tech-related investments. Charu Chanana, an investment strategist at Saxo Bank, mentioned that while demand for AI remains robust, the costs involved amidst potential rate hikes are a growing concern. She observed that AI-related stocks were leading the losses, citing Japan's Tokyo Electron and Advantest which saw declines of around 8% and 15%, respectively. The AI-focused startup investor SoftBank also dropped by 10%.

The disquiet among investors has persisted despite strong earnings reports from companies like Taiwan's semiconductor giant TSMC, which typically would be expected to bring some stability to the market. However, such positive financial performances did little to quell the anxiety as noted by Andreas Lipkow, chief analyst at CMC Markets. Lipkow suggested that the use of favorable earnings reports as an opportunity to exit positions serves as a serious warning signal for stock markets. "If even good news isn't purchased but is used for exits, that is a significant warning sign for the markets," Lipkow explained.

Market analysts continue to monitor the developments in the AI sector closely, assessing the balance between demand and expenditure. As central banks around the world contemplate their monetary policy strategies, the impact on global markets, particularly those sector-specific impacts, becomes increasingly pivotal for investors. The current environment highlights the delicate equilibrium between maintaining investor confidence in high-growth sectors like AI whilst managing broader economic conditions such as inflation and interest rates.

Source: spiegel.de