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Tech stock meltdown could get a lot of worse if history is any guide
And you thought this week has been painful for the tech trade.
If history is any guide, the pain for tech may only be just beginning!
The S&P 500 tech sector has seen six pullbacks of 10% or more since 2023, points out Truist chief markets strategist officer (chart below), including the current one. But four of the six plunges have ranged from 14% to 27%.
"The story is no longer simply about the strength of AI demand. Wall Street is increasingly demanding evidence that heavy investment will translate into durable profits and cash flow," Lerner says.
The AI trade took a serious beating Friday, with more than $1 trillion in market value wiped away as investors fretted about weakening cash flow profiles of Big Tech as it spends aggressively on AI. The news on the cash front worsened as the weak went along.
Tech stocks wipe out $1 trillion in value as concerns deepen about the AI boom
Tech stocks plunged Friday, erasing more than $1 trillion in value. The Nasdaq 100 index fell 3.4% in afternoon trading, its worst one-day drop since mid-June.
The sell-off pushed the Nasdaq 100 close to what is known as “correction territory,” which is a decline of 10% or more from an index’s last record high.
The broader S&P 500 also sharply dropped 1.8%. The S&P’s tech sector was by far the worst performing of the day, tumbling by more than 4.2%.
As trillion-dollar tech companies spend hundreds of billions of dollars to build out artificial intelligence data centers, investors are looking for clearer signs that all that spending is actually delivering returns.
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Stock market rocked as investors dump tech shares; Nasdaq suffers worst day since June: Live updates
The Nasdaq Composite tumbled on Friday, while the Dow Jones Industrial Average outperformed as traders moved out of key stocks related to artificial intelligence and into more defensive areas of the market.
The tech-heavy Nasdaq lost 2.86% and closed at 25,437.00, posting its worst single-day performance since June. The index was also roughly 8% below its recent high. The blue-chip Dow was down 572.25 points, or 1.09%, to end at 51,770.31. The S&P 500 slid 1.82% to 7,580.07.
Selling pressure intensified in afternoon trading as investors took money off the table into month-end and ahead of next week's contentious midterm elections.
Amazon shares lost more than 1% after the company reported earnings and revenue for the third quarter that fell short of Wall Street's expectations. The e-commerce and cloud giant also posted negative free cash flow of $42.4 billion and maintained its 2026 capital expenditures forecast for $220 billion.
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