On August 5th local time, the "Big Seven" technology stocks in the United States continued to decline, with Nvidia falling 6.36%, Apple falling 4.82%, Google A falling 4.45%, Tesla falling 4.23%, Amazon falling 4.1%, Microsoft falling 3.27%, Meta falling 2.54%, and the total market value of the "Big Seven" evaporating $653 billion.
Cartography: 21st Century Business Herald reporter Kong Haili, intern Wang Tian
At the same time, the three major US stock indices collectively closed down, with the Nasdaq falling 3.43%, the Dow Jones Industrial Average falling 2.60%, and the S&P 500 index falling 3%, marking the largest single day decline since September 2022.
In fact, on the previous trading day (August 2nd), US technology stocks had already entered a downward trend. On that day, Intel fell sharply by 26.06%, Amazon closed down 8.78%, Tesla closed down 4.24%, Google A closed down 2.4%, Microsoft closed down 2.07%, Meta closed down 1.93%, and Nvidia closed down 1.78%.
This round of stock price pullback of US stock technology giants accelerated the fear of "AI foam". Behind the huge AI investment, the "monetization of AI" is still unclear, and Wall Street's confidence is still wavering. They need to know whether the large investment can generate considerable income and profits, otherwise it may lead to valuation depreciation.
However, giants are still very active in burning money for AI. In the latest disclosure of their second quarter reports, the management of Google, Microsoft, Meta, and Amazon all revealed that they will "continue to increase investment in AI" and expand AI infrastructure construction, even stating that "overinvestment is better than missing opportunities".
Stock price shock
In the past decade, the performance of a group of leading technology stocks in the United States has created a myth for major exchanges since the beginning of the new century.
Technology giants such as Microsoft, Apple, Meta, Google, and Amazon have seen their stock prices increase by over 10 times, with Tesla and Nvidia's stock prices rising by over 100 times. In the past, we used to refer to the "Big Five" in technology, but now we call them the "Big Seven" in technology. It is their weight that has jointly driven the US stock market (New York Stock Exchange and Nasdaq Stock Exchange) to repeatedly reach new highs.
Objectively speaking, the rising stock prices of these technology leaders have a solid performance foundation. For example, Tesla has been losing money for 10 consecutive years, but shareholders are firmly optimistic and continue to invest, finally ushering in a strong sales performance explosion. For example, Nvidia's bet on artificial intelligence finally saw a tsunami of demand growth in 2013.
But everything has two sides. At a certain stage, the capital market will experience a "unilateral upward trend". However, looking at it over a longer period of time, the sustainability of the 10-year "unilateral upward trend" of the US technology sector has been controversial in the past period. By July 2024, there are already signs of insufficient momentum or even decline.
At present, the phased adjustment of US technology stocks has its "trigger", which may be the inadvertent flapping of butterfly wings or the combined effect of multiple coincidental factors.
Some people believe that Buffett's significant reduction in his holdings of Apple led to the collapse of US technology stocks, but in reality, Buffett's Berkshire Hathaway only announced its second quarter revenue on August 3rd local time, and the news of his reduction in holdings of Apple was also released as a result. In the second quarter, when Buffett was reducing his holdings all the way, his heavily held Apple rose 22.99%, while the Nasdaq rose 8.26% during the same period.
Buffett hinted that their reduction in Apple holdings is mainly due to tax factors. In terms of performance, Apple's performance is not bad. The financial report for the third quarter of 2024 (i.e. the second quarter of 2024) released on August 2nd showed that Apple's total revenue was $85.78 billion, a year-on-year increase of 5%; The net profit was 21.45 billion US dollars, a year-on-year increase of 7.9%.
Therefore, on August 2nd, while the stock prices of multiple giants fell, Apple also rose slightly by 0.69%. However, on August 5th, the trend was unstoppable, and Apple also fell by 4.82%.
Leading and dragging the entire US technology into this adjustment vortex, Intel and Nvidia are actually indispensable.
Prior to the stock market on August 2nd, Intel released its second quarter financial report, with a net profit loss of $1.6 billion, compared to a net profit of $1.5 billion in the same period last year.
On that day, Intel plummeted by over 26%, which was at least the largest drop since 1982. Under the influence of Intel, a group of technology stocks collectively declined. On August 5th, Intel continued its deep adjustment, with a decline of 6.38%.
The decline in Intel's stock price is mainly driven by its own factors. The wafer foundry it has invested heavily in is currently in a period of strong investment, which will result in the company's operational losses peaking in 2024. From this perspective, the adjustment of Intel's stock price is a direct (early) reflection of its performance.
At the same time, Intel is facing strong challenges from Arm and AMD. For example, AMD is constantly eroding the X86 architecture chip market; Microsoft, which has long formed the "Wintel" alliance with Intel, has recently partnered with Arm to develop its own chips, and the WoA (Windows on Arm) camp's combat power has skyrocketed.
From the history of chip development, Intel has never been in a state of peace of mind, but Nvidia is currently the absolute leader in the field of computing power, and its stock price has also begun to adjust.
On the news front, there are reports that Nvidia's strongest AI chip, Blackwell, may experience delivery delays of three months or more due to design flaws, or affect major clients such as Meta, Google, and Microsoft, who have ordered billions of dollars worth of chips.
If the rumors are true, it will indeed directly affect Nvidia's performance, causing a temporary drop in its stock price.
On the other hand, the underlying reason is that since 2023, the rapid development of the artificial intelligence industry chain has perfectly matched Huang Renxun's previous strong bets in this field, but Nvidia's unparalleled success is also accompanied by another concern: whether it is overvalued.
Elliott Management, a well-known hedge fund, told investors this week that large technology stocks - especially Nvidia - are in the "foam category". It is doubtful whether large technology companies will continue to buy a large number of Nvidia's graphics processors.
AI foam worry
The real concern is, what is the "money market" for the commercial application of AI? Is there "excessive hype"?
Not only Nvidia, Elliott Management believes that "artificial intelligence has been overhyped and many applications are not yet ready for their golden age," stating that many so-called uses of artificial intelligence "will never be cost-effective, will never truly work, will consume too much effort, or will prove to be untrustworthy.
The Goldman Sachs strategist Ryan Hammond team reported that Internet giants including Amazon, Meta, Microsoft and Google have spent about 357 billion dollars on capital expenditure and research and development in the past year, and "a large part" of these expenditures has been used for artificial intelligence. But these super large enterprises will ultimately be required to prove that their investments can generate income and profits. If there are no signs of profitability, it may lead to valuation depreciation
Bill Gates also said last month: "It is unprecedented that so much capital has piled into new fields. From the perspective of market value or valuation, the entire AI market has fallen into a state of fanaticism, which dwarfs the fanaticism of the Internet and automobile periods in history."
The strong explosion of artificial intelligence is triggered by large models represented by ChatGPT. From the perspective of individual enterprises, Nvidia is the biggest beneficiary of this revolutionary industrial development process.
But recently, big models have started to become anxious, manifested in forms such as grabbing land with small models and launching price wars. Essentially, capital urgently needs to see a path for artificial intelligence to make money. The underlying logic of "commercial application" is to quickly find a profit model, which is the case in both domestic and foreign industries.
OpenAI is undoubtedly one of the most financially powerful artificial intelligence companies, with Microsoft alone investing over $10 billion in it. However, even so, OpenAI may face a revenue shortfall of up to $5 billion in 2024.
At the second quarter earnings conference call of popular technology stocks in the United States, management was widely asked about AI spending by investors. This is the most closely watched issue of the entire technology earnings season, as investors try to determine where the company is in terms of AI infrastructure construction, how much future spending it will have, and revenue outlook.
During the Q2 earnings conference call, Meta raised its lower limit for full year capital expenditures to $37 billion and expects significant growth in capital expenditures by 2025. Its CFO Susan Li revealed, "We will significantly increase our investment in AI infrastructure next year." Meta founder Mark Zuckerberg said, "Instead of taking the risk of lagging infrastructure construction, it's better to be prepared in advance
Actually, I think all investing companies are making rational decisions, "Zuckerberg once said," because the downside of being behind is that you won't be able to master the most important technology in the next 10 to 15 years
This' fear of missing out 'is also dominating other tech giants. Sundar Pichai, CEO of Alphabet, the parent company of Google, bluntly stated that the risk of 'underinvestment' in AI far outweighs the risk of 'overinvestment'. He stated that even if there is indeed an overinvestment situation, the current investment in infrastructure such as data centers can be used for other tasks, and not maintaining a leading position in the AI competition will have a more serious negative impact on the company.
Microsoft management also revealed that in order to meet the growing demand signals for AI and cloud products, it will expand infrastructure investment, and it is expected that capital expenditures in fiscal year 2025 will be higher than those in fiscal year 2024. Amazon has stated that its investment in AI infrastructure will be higher in the second half of the year.
At the same time, popular technology companies have coincidentally tried their best to explain in their financial reports what kind of support AI has brought to their performance, but this driving effect has not yet entered the substantive stage. Meta's Chief Financial Officer Susan Li candidly stated that generative AI products will not be the main driver of Meta's revenue in 2024, and it is expected that AI will create new revenue opportunities over time.
Capital is good at gambling, but also the most cruel. If it cannot see the dawn of profitability, it may suddenly stop investing - and demand is largely driven by investment. From the development process of the past year and a half, the revolutionary application of artificial intelligence still has a long time gap from the market's expected universal demand.