AI Doubts Lead to Stock Market Correction in Tech Sector

The announcement from Meta, Mark Zuckerberg's group, which wants to launch a new capital raising to finance its huge investments, fueled investors' questions on Thursday about the capacity of companies in the sector to generate profits. This decision, revealed on October 22, acted as a catalyst for concerns about the financial solidity of technology giants engaged in the race for artificial intelligence (AI).

Widespread fall in indices and technology stocks

The Nasdaq, rich in technology stocks, fell heavily (-2.60%), its worst day since June, as investors sold everything related to AI. At the same time, the S&P 500 lost 1.21% while the Dow Jones remained stable. Meta lost big in the affair – the value suffered a decline of 7%, or 124 billion dollars (110 billion euros) of capitalization wiped out in one session – despite the publication of good results.

All the hyperscalers, these tech giants hungry for capital to build data centers and other AI infrastructures, suffered the same fate, such as Alphabet (– 3.15%), Amazon (– 4.47%) and Microsoft (– 2.23%). The stock of Nvidia, the company that manufactures the chips needed to run AI, for its part dropped 4.40%. SpaceX (– 9.14%) and Tesla (– 3.08%), Elon Musk's companies, were similarly sanctioned. No one was spared.

A sign of the slight wave of panic, American Treasury bonds, unattractive since the start of the school year, suddenly found buyers. The ten-year yield fell to 5.07%.

Tensions in the Middle East pushed crude oil to $113 a barrel, the highest level since May. Last week, the difficulties of CoreWeave, a player in the cloud and data center economy, had already caused a wave of withdrawals. CoreWeave builds data centers optimized for AI and then rents their computing power to digital giants like Meta or Microsoft. At the end of June, the company reported owing around $35.6 billion to its creditors, according to a document sent to the American stock market watchdog (SEC). The bottlenecks are known: certainly the adoption of AI is progressing at high speed, but questions remain about the ability of these companies to make the immense investments required profitable.

The battle to take the lead in the race is only getting bigger. The announcement of Meta's fundraising collides with the future IPO of Anthropic and the ambitions of all its other competitors. Mark Zuckerberg's company remained vague on the amounts, indicating that it was aiming for "several hundred billion dollars".

Machine-translated from French