Market strategists debate whether Big Tech’s spending spree can pay off
US stocks tumbled Tuesday as investors questioned whether artificial intelligence companies could justify their sky-high valuations, with major bank executives warning of a potential correction ahead.
The tech-heavy Nasdaq Composite led the decline, falling 2.04% to close at 23,348.64, according to CNBC. The S&P 500 dropped 1.17% to finish at 6,771.55, while the Dow Jones Industrial Average shed 251.44 points, or 0.53%, to settle at 47,085.24.
Palantir Technologies triggered much of the concern, with shares falling about 8% despite the software company beating Wall Street’s third-quarter estimates and providing strong guidance driven by growth in its AI business, CNBC reported. The stock, which has risen more than 150% this year, trades at over 200 times forward earnings.
“Profits are good, but I think investors are starting to ask themselves, based on the pace of [capital expenditure] investments from some of these key Big Tech companies, ‘Are you going to see the profit growth over the next year to justify the levels of capex?’” Anthony Saglimbene, chief market strategist at Ameriprise, told CNBC.
Other AI-related stocks also declined Tuesday. Oracle, which holds a forward price-earnings ratio above 33, slipped nearly 4%. Chipmaker AMD, which has more than doubled this year, fell close to 4%, while Nvidia and Amazon also retreated.
Adding to investor unease, executives from Goldman Sachs and Morgan Stanley warned of possible market pullbacks. Goldman Sachs CEO David Solomon said at the Global Financial Leaders’ Investment Summit in Hong Kong: “It’s likely there’ll be a 10 to 20% drawdown in equity markets sometime in the next 12 to 24 months.”
Morgan Stanley CEO Ted Pick noted: “We should also welcome the possibility that there would be drawdowns, 10% to 15% drawdowns that are not driven by some sort of macro cliff effect,” CNBC reported.
The equal-weighted S&P 500 outperformed Tuesday, declining 0.7% while the market-cap-weighted index fell 1%, CNBC said. Information technology, consumer discretionary, and communication services were the worst-performing sectors. Financials, consumer staples, real estate, and health care were the only sectors trading in positive territory.
Berkshire Hathaway Class A shares climbed 2.6% as investors sought safety during the sell-off, drawn to the holding company’s size and stability, CNBC reported. Warren Buffett’s conglomerate on Saturday reported a 34% jump in operating profit.
Cryptocurrency markets also stumbled. Bitcoin briefly fell below $100,000 to its lowest level since June, with strategists citing concerns about waning liquidity amid the ongoing government shutdown, according to Yahoo Finance.
The US government shutdown entered its 35th day Tuesday, tying the record for the longest in history. The stoppage continues to delay the release of key economic data, including the jobs report.
