⬇️The US100 dips 2.6%

Over the past few months, the narrative has been simple: artificial intelligence is the engine of growth, and companies investing billions in AI infrastructure are the sure-fire winners of the next decade. Tech giants have been competing to announce ever-larger capex budgets, chipmakers have been setting records, and valuations have been rising without regard for fundamentals. Tuesday’s trading session has dealt a brutal blow to this optimism – investors are now asking en masse a question that until now had fallen out of favour: when will this astronomical spending on AI actually translate into profits?

The immediate trigger was Monday’s crash in SpaceX shares (-17%), which, shortly after its high-profile IPO, sought fresh funding – a sign that even the most sought-after ‘new era’ companies need cash sooner than the market had expected. Today, SpaceX is rebounding slightly by around 1%, but the rest of the sector is being taught a harsh lesson. Chipmakers are at the centre of the sell-off: Micron is down over 8%, Intel nearly 7%, AMD and Qualcomm both over 5%, and the iShares Semiconductor ETF (SOXX) is plunging by almost 6% in pre-market trading. In Europe, Infineon is down 6.6%, ASML 6%, and STMicroelectronics over 7%. In Asia, the impact has been devastating – the KOSPI has fallen by 10% in its biggest one-day slump since March, dragged down by Samsung and SK Hynix, both down 12%.

Macroeconomic factors are actively fuelling the sell-off. The Fed, under its new chairman Kevin Warsh, is signalling a hawkish stance on inflation, and the markets are already pricing in a 50 bp rate rise by the end of the year. Yields on 2-year Treasuries have soared to 16-month highs (~4.19%), the dollar has strengthened to annual highs (USDIDX above 101), and gold is down 1.5% to ~$4,127. Brent crude has slipped below USD 76/bbl – under normal circumstances, this would be a positive signal for equities, but today nobody is celebrating, as attention is focused solely on what higher interest rates will do to the valuations of growth stocks.

 

What about valuations? The Nasdaq 100 is currently trading at a P/E ratio (TTM) of around 35.3x – this is still well above historical averages, though a long way from the peak reading of 39–40x seen in May this year, when AI euphoria was at its height. In other words: valuations are elevated, but they are not yet at levels that in themselves scream ‘the bubble is bursting’ – rather, with bond yields on the rise, any wobble in the AI narrative is painfully testing the premium the market has paid for tech giants over recent months. Source: XTB

This table, showing the prices of the most important instruments, gives you a general idea of today’s volatility. Source: xStation

You can find more information on what is driving today’s trading session in our posts on the platform. ⬇️