The stock prices of large tech companies that drove the market in the first half of the year have started to decline. Since the second week of July, the "Big Seven" have lost their upward momentum.
As earnings reports from large tech companies are about to be released, investors are preparing for the quarterly financial reports of Microsoft, Meta, Apple, and Amazon. Alphabet and Tesla's results last week have already dampened enthusiasm for large tech companies, and the trend for the Big Seven has become more bearish.
Dragged down by Nvidia and other AI-related stocks, the Nasdaq index fell 1.3% on July 30, the S&P 500 dropped 0.5%, while the Dow Jones Industrial Average rose 0.5%.
The Federal Reserve policy meeting is about to begin, but this week's tech giant earnings reports and Friday's employment report may be more important. The July employment report will be one of the key data points before the September policy meeting.
One explanation for the decline in the Big Seven's stock prices is that investors are shifting towards small-cap stocks. Around July 10, the Nasdaq Composite index began to fall, contrasting with the Russell 2000 index.
Another explanation for the sentiment shift is that investors are concerned about a slowdown in AI spending. Large tech companies have invested heavily in AI chips, with Nvidia being a major beneficiary. However, apart from hardware suppliers, AI has not yet generated significant revenue for other companies.
Sequoia Capital venture capitalist David Kahn pointed out that Nvidia's customers would need to generate $600 billion in AI revenue to achieve an acceptable return on investment. He believes they would be lucky to get $100 billion in new revenue at present.
Morgan Stanley analyst Brian Nowak considered the potential return on investment from Meta's large-scale capital expenditure but still maintained a buy recommendation.
Large tech companies will continue to invest in AI hardware. Alphabet's capital expenditure nearly doubled last quarter, with CEO Pichai stating that massive investments in AI are necessary.
The biotech sector is also pursuing AI. Moderna co-founder Noubar Afeyan said his company plans to use some of its funds for AI models in drug development.
While it's impossible to predict the long-term winners in AI, in the short term, funds will continue to flow into this field.
[Original link]