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Key Takeaways:
- "Magnificent Seven" Under Pressure: The leading Big Tech stocks ("Magnificent Seven") are experiencing significant weekly losses due to investor concerns regarding high valuations and the sustainability of AI-related spending.
- Nvidia’s Woes: Nvidia is particularly affected, facing its worst week since April, fueled by comments regarding the US potentially losing the AI race to China and the lack of a federal bailout for AI.
- Spending Concerns: Meta and Microsoft are also experiencing losses as investors scrutinize their massive spending plans.
- Tesla’s Pay Package Controversy: Tesla is further impacted by shareholder approval of Elon Musk’s potentially $1 trillion pay package, adding to investor unease.
- Intel’s Opportunity: Intel is a notable exception, experiencing gains amidst the downturn, potentially benefiting from a collaboration with Tesla in chip manufacturing.
- Broader Chipmaker Downturn: Other major chipmakers like AMD and Broadcom are also experiencing significant losses, reflecting broader concerns in the semiconductor sector.
Summary
The "Magnificent Seven" group of Big Tech stocks is facing a week of steep losses, reflecting mounting investor apprehension about the lofty valuations and significant spending associated with the ongoing AI buildout. The shift in investor sentiment is prompting a re-evaluation of whether the current levels of investment are sustainable in the long term.
Nvidia, a leading player in chip manufacturing and a key enabler of AI technologies, is particularly affected. The company experienced a roughly 3% drop on Friday morning alone. This downturn follows comments from CEO Jensen Huang suggesting the US could lose the AI race to China, as well as the statement from a Trump administration official that there will be no federal bailout for AI. Nvidia is on track for its worst week since April, with a decline of over 9.5% in the past five days.
Meta and Microsoft, both known for their ambitious spending plans in AI and metaverse initiatives, are also under pressure. They experienced losses of approximately 2.5% and 0.5%, respectively, on Friday morning, bringing their weekly losses to over 4% each. Investors are closely examining these companies’ spending levels, raising questions about the return on investment and the overall impact on profitability.
Tesla encountered further turmoil following its shareholder meeting on Thursday. Shareholders approved a compensation package for CEO Elon Musk that could be worth as much as $1 trillion. This decision, while supported by some, has raised concerns about corporate governance and the alignment of executive pay with shareholder value, contributing to a further 3.5% drop in Tesla’s stock price on Friday morning.
Intel, while not a member of the "Magnificent Seven," bucked the trend, showing a roughly 1% gain on Friday morning. Musk hinted at the possibility of collaboration with Intel on building chipmaking capacity to power Tesla’s autonomous electric vehicles, which potentially positions Intel to benefit from Tesla’s ambitions.
Alphabet and Amazon are also headed for losses, shedding more than 1% on Friday, while Apple gained a bit over 0.2%, bucking the broader trend.
Other prominent chipmakers, including AMD and Broadcom, are experiencing significant losses as well. AMD was down more than 2% on Friday, heading for weekly losses of more than 9%, while Broadcom was similarly down more than 2%, for weekly losses of more than 5%. This widespread downturn in the semiconductor sector suggests that investor concerns extend beyond individual companies and reflect broader worries about the sustainability of the AI-driven chip boom.
