Shares of almost all AI race beneficiaries have fallen in price. Has Wall Street become disillusioned with AI?

Wall Street by the end of the summer began to massively withdraw from deals related to artificial intelligence, notes Barron's. In trading on Friday, August 29, almost all major companies benefiting from the AI boom were in the negative.

The decline in quotations at the auction on August 29 affected chip manufacturers such as Nvidia and AMD, whose shares fell in price by 3.6% and 3.3%, respectively. One of the main outsiders was the cloud company Oracle, which lost more than 6% of its value for the day. Shares of infrastructure provider CoreWeave were falling by about the same amount at the moment, but by the end of the session they recovered most of their losses. The capitalization of Vertiv Holdings, which makes power and cooling systems for data centers, fell 5.3%. One of investors' favorite stocks, civilian and military AI developer Palantir, fell 1%.

Traders appear to be exiting artificial intelligence-related trades en masse, Barron's said. The Technology Select Sector SPDR exchange-traded fund, which tracks semiconductor and software stocks, fell 1.7%. The Bank of America AI Infrastructure Index was down 3.6% at mid-day, the most since April.

Mizuho analyst Dan O'Regan noted several reasons why investors may have cooled to AI-related deals. He said the market was disappointed that the quarterly report released Wednesday by the world's most valuable company, chipmaker Nvidia, didn't provide a new reason for growth. "Now that the reporting season is over, investors are wondering what's next?" - he wrote.

While Nvidia's results beat Wall Street forecasts and signaled a strong AI outlook, it failed to show higher-than-expected revenue from its key division that makes AI chips for data centers. The company also failed to impress investors with its outlook.

Friday's news from China put additional pressure on the chipmaker itself and the market as a whole. According to The Wall Street Journal, Alibaba has developed its own chip for artificial intelligence, which could potentially become an alternative to the H20, which Nvidia is allowed to supply to the Chinese market. "How effective and in-demand this chip will prove to be remains to be seen, but the very fact that it is available suggests that China is accelerating the creation of its own AI ecosystem," O'Regan noted.

The analyst recalled the decision of the U.S. Department of Commerce to revoke licenses that allowed Samsung and SK Hynix to export U.S. chip-making equipment to China. This, according to his assessment, may increase tensions in technological relations between Washington and Beijing.

However, even without that news, the day would likely have been a tough one for AI stocks, Barron's said. Many traders had already headed into the long Labor Day weekend on Sept. 1, and trading was taking place with low liquidity. "In such an environment, even small sales can weigh heavily on quotes," O'Regan explained.He added that rumors on Friday suggested that algorithmic funds may have been rebalancing portfolios to end the month - especially amid the absence of large institutional players. "Given the low volume from active managers, this assumption seems reasonable," the analyst concluded.

Investors are increasingly showing signs of caution in trading shares of AI boom beneficiaries, Reuters notes . Technology stocks, including key companies in the industry, have staggered this month despite giants like Microsoft and Meta reporting increased capex on AI, the agency recalls.

"AI is the key factor driving the stock market right now," Peter Berezin, chief global strategist at BCA Research, told Reuters. An equal-weighted basket of 50 AI-related stocks has risen nearly 170% since the end of 2022 as of Monday, Aug. 25, according to Bespoke Investment Group, and increased interest in AI has helped boost valuations of these securities well beyond historical levels. The multiple, which reflects the price-to-earnings ratio of the S&P 500, is now 22.4 - close to a high in more than four years, according to LSEG Datastream. Meanwhile, for the technology sector - the largest weighting in the index - the multiplier has climbed to 29.2. "There is a risk that the market has gotten a bit ahead of itself and some of the short-term expectations simply won't materialize," the BCA strategist said.

Multiples are still lower than they were during the dot-com bubble, Reuters points out. Still, investors note that the tech sector's increasingly large share of market indexes may suggest an over-reliance on market momentum. Tech companies now account for more than a third of the S&P 500's market capitalization - almost as much as they did in March 2000, according to LSEG Datastream data.

"Market concentration risk is real and growing," said Ameriprise Financial strategist Anthony Saglimbene.

This article was AI-translated and verified by a human editor