The Nasdaq Composite fell 1.4 percent. Why did investors get rid of technology stocks?

The main U.S. stock indices collapsed at the end of trading on Tuesday, February 3. At the same time, the technological Nasdaq Composite suffered the most, it lost almost 1.5%. Investors reallocated capital from technology stocks to securities, which are more related to the improvement of the economy, explains CNBC. The main pressure on the market was exerted by players that traders consider vulnerable amid the widespread introduction of artificial intelligence, Bloomberg points out . These are mainly software developers.

- The technology index Nasdaq Composite fell by 1.4% in trading on February 3. An hour before the close of the session, it was trading down by 2.1%.

- The S&P 500 broad market index lost 0.8% and was down 1.3% at one point.

- The Dow Jones Industrial Average was down 0.3 percent, while it was up 0.5 percent at the start of the trading day and even hit a record at 49,653.13, CNBC reported.

- The Russell 2000 index of small-capitalization companies slipped 0.1%.

- The Cboe VIX Volatility Index, also called the Wall Street Fear Index, jumped almost 10% and hovered around 19.5 during the session. The level of 20 is considered psychologically important.

- Bitcoin has fallen in price by 4%, its price has reached its lowest point since November 2024, writes CNBC.

The initial growth in chip maker stocks has waned amid capital rotation to industries more sensitive to economic recovery, Bloomberg notes . The agency points to two trends: optimism about the U.S. economy fuels this rotation, while bets on AI securities are becoming less monolithic - investors are starting to pick winners and losers. As a result, most tech stocks were in the negative at the end of Tuesday. Nvidia and Microsoft lost about 2.9% of their value, Meta quotes fell by 2.1%.

"Trading on Wall Street is now at a bifurcation point: technology is giving way to cyclical sectors, even though Palantir the night before significantly beat market expectations for its quarterly results and raised its outlook for future performance, which initially supported optimism about AI's prospects," Interactive Brokers senior economist Jose Torres told Bloomberg.

"Our sense is that there is an active grind beneath the surface of the markets, with concerns about AI capital expenditures colliding with hopes for expanded growth on the back of an accelerating U.S. economy," said Chris Senyek of Wolfe Research.

"We are in a 'rotating' bull market," confirms Craig Johnson of Piper Sandler. - Capital is flowing into cyclical and value stocks."

"It happens once or twice a year. The reason is different each time, but the effect is always the same. Some of the most popular trades of the previous uptrend are just ruthlessly trashed," Josh Brown, co-founder of Ritholtz Wealth Management, reminded CNBC. Risk appetite is leaving everything related to technology, he believes.

The broad market was also pulled by companies in the data services segment, Bloomberg explains . They went down in price after AI startup Anthropic introduced an automation tool for lawyers. Gartner lost 20% of its value, while FactSet Research Systems, S&P Global and Accenture were also hit. EPAM Systems shares collapsed nearly 13%, while Intuit shares fell 11%.

Securities of software developers continued a tough sell-off as investors reconsider the long-term growth prospects of the sector in the era of artificial intelligence, the agency wrote . Quotes of individual companies from the corporate software segment updated the lows for the year, including HubSpot, ServiceTitan, ServiceNow, Atlassian, DocuSign, Salesforce, Workday and Adobe, Bloomberg calculated.

Risks to the industry have been building up for months, and recent releases by Anthropic and Google have dramatically heightened fears of disruptive changes for traditional software vendors.

"We call it the 'SaaSpocalypse' - the apocalypse for software-as-a-service stocks," Jefferies' Jeffrey Favuzza told Bloomberg. - "Trading [these securities] is now in a 'get me out of here at any cost' mode."

After Microsoft's cloud revenue growth fell short of Wall Street's expectations, causing the tech giant's shares to plummet, investors will be watching Alphabet and Amazon's reports this week closely for signals of productivity, revenue and margin growth, said Ulrike Hoffmann-Burhardi of UBS Global Wealth Management. "With continued demand, resilient spending and encouraging monetization trends, we believe AI will remain a key driver of overall equity market performance," she predicted. That said, the analyst expects the range of beneficiaries to continue to grow. "We recommend that investors position for an expanding rally, favoring the financials, healthcare, utilities and consumer discretionary sectors outside the technology industry," UBS said in a note quoted by Bloomberg.

"We expect global equity markets to rise by around 10% by the end of this year, and investors with concentrated positions in the US would benefit from diversifying into other markets," says Mark Haefele of UBS. - One of the most effective ways to manage macroeconomic uncertainty and market volatility is to ensure portfolio diversification".

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