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US tech stocks sold off on Tuesday as a wave of concerns that intense enthusiasm surrounding artificial intelligence could be overdone slammed into some of Wall Street’s most speculative companies.
The tech-heavy Nasdaq Composite closed down 1.4 per cent, with software group Palantir falling 9.4 per cent and chipmaker Arm Holdings shedding 5 per cent.
The decline marked the biggest one-day drop for the index since August 1. The blue-chip S&P 500 closed 0.7 per cent lower.
Traders pinned some of the decline on a report released late on Monday by a branch of the Massachusetts Institute of Technology in which researchers said that “95 per cent of organisations are getting zero return” from their investments in generative AI, the technology that has sent US stocks soaring to a series of record highs in recent months.
“The story is spooking people,” said one trader close to a multibillion-dollar US tech fund.
“Just 5 per cent of integrated AI pilots are extracting millions in value, while the vast majority remain stuck with no measurable [profit and loss] impact,” the MIT report said.
The stock drop also came days after OpenAI chief executive Sam Altman signalled that an AI bubble might be forming.
“Are investors over excited? My opinion is yes,” Altman told reporters this week.
He also said: “I do think some investors are likely to lose a lot of money, and I don’t want to minimise that, that sucks. There will be periods of irrational exuberance. But on the whole the value for society will be huge.”
Tuesday’s declines were driven by drops for some of this year’s best performing stocks. AppLovin, which serves up adverts within apps, lost 5.9 per cent, while Nvidia — whose advanced AI chips are relied upon across the industry — fell 3.5 per cent. Oracle and Advanced Micro Devices, two of the five top-performing large-cap stocks since mid-May, fell 5.9 per cent and 5.4 per cent, respectively.
Bitcoin shed 2.7 per cent, driving falls in stocks linked to the digital token such as Strategy and Metaplanet.
“A lot of these were very crowded trades, so when there’s a move to the exit, things can get messy,” said Steve Sosnick, chief market strategist at Interactive Brokers, a platform widely used by individual investors.
Defensive parts of the market including consumer staples, utilities and real estate rose as tech slipped. About seven in 10 S&P 500 stocks ended the session higher.
Tech has driven the market’s recent run higher. The S&P 500 information and technology sub-index has risen 14 per cent since mid-May, led by AI-linked companies such as Oracle and AMD.
“It’s still a supportive macro environment. But, bottoms up, [some of the] frothy valuations are contradictory,” said Mark Giarelli at Morningstar.
Additional reporting by George Hammond in San Francisco
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