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US technology stocks sank sharply on Wednesday after lacklustre overnight results from index heavyweights Tesla and Alphabet, deepening the recent sell-off in a sector that has driven the bulk of market gains this year.
The Nasdaq Composite was down 2.7 per cent by mid-afternoon in New York, with Google parent Alphabet 4.5 per cent lower despite narrowly beating analysts’ revenue forecasts. Advertising revenue from YouTube missed consensus estimates.
Tesla sank more than 10 per cent after profits fell well short of expectations, leaving the electric vehicle maker on course for its biggest one-day decline since late January.
The sell-off deepens a recent slump for the high-flying tech sector, as investors have backed away from stocks boosted by the promise of artificial intelligence in favour of unloved corners of the market such as smaller companies.
The Nasdaq is down more than 6 per cent from its high on July 10. The next day, lower than forecast US inflation first triggered the dramatic market rotation.
Alphabet and Tesla’s results would “feed concerns” that the broader market had become too reliant on the Magnificent Seven of big tech stocks, said Charlie McElligott, an analyst at Nomura.
“Risk sentiment remains fragile,” he added.
UBS on Wednesday reiterated its “sell” rating on Tesla’s stock, warning that the “timeframe and probability of success” of plans to roll out self-driving “robotaxis” remains unclear.
On Tuesday, Tesla’s billionaire chief executive Elon Musk officially pushed back the unveiling of the vehicles from August to October. However, he claimed that the project could still take the company’s valuation as high as $5tn — about six times its current market value.
Google’s capital spending and outlook was being used as an indicator for the wider trend of backing companies with links to generative AI, said analysts.
All of the so-called Magnificent Seven were lower on Wednesday. Chipmaker Nvidia, which has more than doubled this year, was down by almost 5 per cent. Facebook parent Meta slid more than 4 per cent while Apple and Microsoft fell more than 3 per cent.
“We’ve got some of the Magnificent Seven digging their heels in, in terms of spending on AI,” said Kevin Gordon, a senior investment strategist at Charles Schwab, “and if they’re not wildly exceeding [earnings] expectations, that’s when you get some profit-taking.”
Wall Street’s blue-chip S&P 500 fell 1.8 per cent. The Russell 2000 index of smaller companies, which has recently rallied strongly on hopes of interest cuts as soon as September, fell just 0.5 per cent.
Wednesday’s sell-off comes as “the macro picture appears to be cracking”, said JPMorgan analysts in a note to clients, who highlighted weakening regional activity data and a housing market that continued “to crumble”.
US Treasuries rallied as investors sought safe assets and ramped up bets on Federal Reserve interest rate cuts. Two-year yields, which are highly sensitive to rate expectations, fell 0.04 percentage points to 4.41 per cent, near their lowest levels since February.
Big Tech companies including Meta, Amazon and Apple will report earnings next week.
An earlier version of this article misstated the date of the recent high in the Nasdaq index
