Tech stocks slide as global markets get wake-up call on AI

Reality check as bruising selloff in several technology giants fuelled concern that the artificial intelligence frenzy might be overblown

The tech rout engulfed stocks as worries about frothy valuations ignited a fresh bout of volatility after a nearly three-month surge in riskier assets. Stock picture

Global stocks got a reality check as a bruising selloff in several technology giants fuelled concern that the artificial intelligence (AI) frenzy that has powered the equity bull market might be overblown.

The tech rout engulfed stocks as worries about frothy valuations ignited a fresh bout of volatility after a nearly three-month surge in riskier assets. 

Losses on global markets

The Nasdaq 100 sank 3.5%. A closely watched gauge of chipmakers — which had doubled from war-driven lows — slid 8.5%. Losses were more pronounced in Asia, with South Korea’s Kospi plunging 10% from a record. SpaceX climbed after briefly falling below its debut’s open price.

In a rush for safety, treasuries rose, while haven currencies  — including the Japanese yen and the Swiss franc — outperformed. Conversely, Bitcoin lost 3%. Oil dipped, with tankers becoming more overt in transiting the Strait of Hormuz after an interim peace deal between the US and Iran.

Europe's markets, including Dublin, fell

European shares also declined, with the Stoxx 600 down 0.51%, weighed by losses in semiconductor and chip-equipment makers. In Dublin, the ISEQ All Share Index fell 1.11%.

Tuesday’s equity pullback comes as the market prepares to close out the first half of the year with some blockbuster gains that had been driven by easing geopolitical tensions, solid earnings and an AI trade revival.

But the tech rally has recently faltered on concerns over whether the billions of dollars spent by giant firms will be justified.

“The risk-off trade reflects fear AI exuberance may be overdone,” said Chris Low at FHN Financial.

While warnings about tech euphoria aren’t new, the latest slide was triggered by amplified swings in the world’s best‑performing market this year. 

What started as a modest drop in South Korea morphed into a plunge that saw foreign investors offloading more than $2.5bn (€2.19bn) of Kospi shares.

Market watchers cited forced liquidation hitting retail investors trading on borrowed money, compounded by a wave of selling tied to leveraged exchange-traded funds tracking SK Hynix Inc. and Samsung.

Volatility centres on memory providers

The volatility was centered on memory providers — an area that has accounted for the lion’s share of equity gains this year — as a local report signalled SK Hynix is redirecting its efforts toward cheaper products, noted Jose Torres at Interactive Brokers.

“It’s going to take quite a bit more weakness in the US market than we’re already seeing to raise any serious warning flags,” said Matt Maley at Miller Tabak. 

“However, given the level of leverage in South Korea and around the world, investors should guard against being overly complacent.” 

Micron Technology results 

Attention will soon shift to Micron Technology’s results on Wednesday, which are expected to provide the clearest test yet of whether demand for AI infrastructure remains strong enough to sustain this year’s rally. Tech giants will return to investor favour following a selloff that has dragged down some of the biggest names in recent weeks, Evercore ISI’s Julian Emanuel said. 

Earnings will be “the proof of the pudding” after driving a “furious rally” in April and May, he told Bloomberg.

“The broader market remains supported by solid fundamentals,” said Brock Weimer at Edward Jones. “However, we believe diversification remains key to managing risk, particularly after the strong gains in technology and other growth-oriented segments of the market.”

• Bloomberg