Nasdaq falls 2.2 per cent as AI spending and rate fears trigger tech sell-off
Investors reassess the sustainability of the artificial intelligence rally as Micron’s earnings loom and US futures show early signs of stabilisation.
Global technology equities experienced a significant downturn on Tuesday, with the Nasdaq index closing down 2.2 per cent. The sell-off was driven by investor concerns regarding massive projected capital expenditure on artificial intelligence and the prospect of higher interest rates, prompting a reassessment of valuations across the sector.
Market participants are now closely monitoring Micron’s earnings report, scheduled for release after market close on Wednesday, to gauge the sustainability of AI demand. Micron shares fell 13 per cent on Tuesday, a sharp reversal from a rise of more than 250 per cent for the year, highlighting the volatility surrounding semiconductor giants in the current economic climate.
The market reaction follows a disappointing initial public offering performance for Cerebras, an AI chipmaker that listed in May. The underperformance of Cerebras and the recent drop in Micron’s stock have intensified scrutiny on the return on investment for massive projected AI spending, with investors questioning the long-term viability of the current rally.
US stock futures showed signs of stabilisation on Wednesday, contrasting with the previous day’s declines. Nasdaq 100 futures rose approximately 0.4 per cent, while S&P 500 futures hovered near flat, although Dow Jones Industrial Average contracts dropped 0.2 per cent. This consolidation suggests a potential pause in the sell-off as traders await further data.
The broader context of the tech decline includes macroeconomic factors, specifically the prospect of higher interest rates, which continue to pressure tech valuations. The focus on Micron’s results serves as a bellwether for the sector, with Wall Street looking for signals on whether the AI demand rally can withstand these headwinds.
