Markets plunged around the world on Tuesday as investors in some of the biggest AI, chip and memory stocks appeared to have renewed doubts about sky-high valuations.
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The decline in technology stocks deepened overnight, led by artificial intelligence stocks and chip stocks, which started with the stock prices of two of South Korea’s largest companies.
Market sentiment was also hurt by Elon Musk’s SpaceX, which fell for several days after its successful debut in the U.S. market on June 12. Shares fell to $147 early Tuesday, but ended the day 1.7% higher.
The turmoil has been driven in part by concerns about the sustainability of tech stocks’ meteoric rise, and by worries that rising inflation resulting from the Iran war and the closure of the Strait of Hormuz will lead to higher interest rates and more expensive borrowing to build the ever-expanding global AI infrastructure.
By the time the final bell rang on Wall Street, the Nasdaq Composite Index had fallen 2.2%. The Nasdaq 100, which includes the exchange’s top 100 non-financial stocks, fell more than 3.2%.
The S&P 500 index closed 1.4% lower, and the Russell 2000 index, which tracks small and mid-cap stocks that often avoid volatility in major tech stocks, fell nearly 1%.
The Dow ended down 46 points.
Shares of SanDisk, Micron Technology and Arm fell more than 10%. Chipmakers Marvell, Analog Devices, Western Digital, Texas Instruments and Qualcomm all fell about 9%.
Shares of Nvidia, the world’s largest publicly traded company and the center of the AI boom, fell 4.15%.
U.S. Treasury yields were only slightly lower across durations, including the 10-year Treasury yield, which has a large impact on consumer borrowing rates.
SpaceX’s wild ride and AI instability
The recent sale of SpaceX stock has wiped more than $915 billion from the company’s all-time high of more than $225 per share reached a week ago. According to Bloomberg, stocks fell nearly 17% on Monday alone, wiping out $400 billion in value. According to Bloomberg, it was the second-largest single-day disappearance in history.
The sell-off in SpaceX accelerated on Monday after the company announced a “first-of-its-kind corporate bond offering” that will likely be used primarily to fuel its AI ambitions. According to a report from Bloomberg, SpaceX wants to raise about $20 billion through a bond issue, which would be on top of the $85 billion it raised in its initial public offering just two weeks ago.
The war for AI talent also caused Alphabet’s sell-off.
On Monday, Google’s parent company Alphabet’s stock had its worst day in a year after a prominent AI talent left the company. The stock continued its downward trend in early trading Tuesday, dropping another 1%.
Stocks in major tech companies around the world were also sold.
In South Korea, the main Kospi index ended sharply lower, down 10%, as two of the most valuable companies, Samsung and SK Hynix, both fell more than 12%.
However, the Kospi has been volatile this year, plummeting 8.2% in early June, before recovering to about the same amount the next day.
In Europe, the Stoxx 600 fell 0.8%, and Germany’s main DAX index fell 1%. Semiconductor maker Infineon was the biggest decliner on the DAX, falling more than 6%.
JPMorgan traders wrote in a note to clients on Tuesday that “gravity is upon us” for Asian indexes and U.S. and European Union futures.
Analysts at JPMorgan said in a separate note that the selloff may reflect some “fear” ahead of memory maker Micron’s earnings report Wednesday afternoon.
Dan Ives, head of technology research at Wedbush Securities, agreed.
“There is further tension surrounding the important memory chip transaction as Micron is scheduled to report earnings this Wednesday,” he said in a note.
Still, Micron stock is up more than 260% since the beginning of the year and more than 760% in the past 12 months.
Similarly, Samsung stock is up 160% this year and 412% over the past 12 months. SK Hynix’s stock price has maintained an increase of over 800% over the past year.
“With the AI revolution still in its third inning, this market will continue to experience multiple ‘testing moments’ in tech,” Ives said. “This morning was just one of those moments.”
Oil is unlikely to return to normal quickly
Meanwhile, oil prices fell slightly as traders continued to digest the latest headlines over talks between the US and Iran to ensure an end to the war.
A small amount of traffic has passed through the Strait of Hormuz since the initial deal was announced, including 15 tankers on Monday, according to S&P Global, but traders appear to remain concerned about the significantly increased flow resuming.
“The US interim ceasefire with Iran has eased near-term oil supply concerns, causing a price decline of $25-$30 per barrel,” Société Générale said in a note to clients on Tuesday. “Nonetheless, the back end of the Brent curve is still rising, with long-term Brent still around $10 per barrel above pre-war levels.”
Analysts at SocGen added: “Given logistical constraints such as demining, route bottlenecks and traffic tensions in Iran, a rapid return to normalcy is unlikely.” “Hormuz River recovery is therefore expected to be gradual rather than immediate.”
