But both markets recovered towards the end, while European shares rose a bit and even Nasdaq rose 0.4% after a 2% decline for the index on Tuesday.The stocks hardest hit in the sell-off have been the biggest winners of a rally that has seen chipmaker Nvidia go from a niche player to the world’s most valuable company.
“The sell-off appears to have been largely driven by positioning, with recent better-performing names being the worst of the lot,” said Jon Withaar, senior portfolio manager at Pictet Asset Management in Singapore.
There was no clear trigger for the decline, but it started with an unexpected negative reaction to the strong financial results of Silicon Valley data and artificial intelligence company Palantir Technologies. Shares on the market, darling, fell almost 8% on Tuesday and fell another 3.5% on Wednesday. “So people are up to their noses in these AI stocks,” said Herald van der Linde, head of equity strategy for Asia Pacific at HSBC. “But how much further can they go? How much more can they buy? And I believe what we’re going to see is a breather… and that breather could come with a rotation.”
On Tuesday, Nvidia shares fell nearly 4% on Wall Street, down about 7% from last month’s peak, as suppliers, competitors and companies across the AI supply chain took a beating in Asia on Wednesday.
“It’s quite widespread selling in the risk-leverage part of the market, which to us looks like short-term profit taking,” said Angus McGeoch, Barrenjoey’s head of equity distribution for Asia in Hong Kong.
He said fund managers could quickly emerge from the downturn ahead of their 2025 results at this time of year, but are not yet looking for a large-scale exit.
“Obviously they don’t want to give up much given the good year…, but if the market looks like it wants to go again, then I don’t think it will take much to get people back involved.”
‘A WOBBLE’
Markets have been riding out months of worries about high interest rates, persistent inflation, trading market turmoil and a fragmented global economy, leading to questions about whether the artificial intelligence boom is a bubble waiting to burst.
It’s fair to say that Tuesday’s 2% decline on the Nasdaq followed a more than 50% rise from the April low.
Vishal Vivek, equity trading strategist at Citi, said the decline does not indicate AI stocks are falling out of favor.
“A little bit of risk isn’t going to take the shine off what has been a pretty remarkable year, in fact, a pretty remarkable three-year period,” he said.
“There’s at least a reasonable chance that you’re going to pause your buying, but you don’t necessarily need to sell your large positions by the end of the year because you’re worried about one or two companies that have underperformed.”
In US markets, third-quarter earnings have been resilient, with more than 83% of S&P 500 companies reporting on Saturday beating analyst expectations, according to LSEG data.
Quarterly reports from the largest tech companies also showed rising AI investments, casting doubt on the circular nature of the spending and profit potential.
“It’s not like their earnings reports were really that bad,” said Seth Hickle, portfolio manager at Mindset Wealth Management. “It just wasn’t firing on all cylinders. And that’s what investors in this environment are demanding.”
Wall Street executives Ted Pick of Morgan Stanley and David Solomon of Goldman Sachs gave voice to some of the market turmoil at an investment summit in Hong Kong and raised the prospect of a pullback.
Matthew Haupt, principal portfolio manager at Wilson Asset Management in Sydney, saw the downturn as investors took money off the table ahead of Wednesday’s U.S. Supreme Court hearing on the legality of tariffs.
“I bought today,” he said. “I hope I’m right.”
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