It was quite a mixed session yesterday as US stocks got off to a hot start, only for it to quickly come undone after. And through the day, there was volatile trading as the AI push and pull played out. The tech sector saw a massive split between chipmakers and the hyperscalers, with big tech sagging in particular.
Micron and Sandisk were the big winners but the gains were not nearly as impressive as indicated during the open. The former closed up by over 15% with the latter up by nearly 22%. Even Qualcomm only managed to close up just under 4% after double-digit gains in pre-market following its Investor Day.
The big losers? Big tech. Apple saw a heavy drop of 6% with Nvidia falling by 1.6%, Microsoft down 3.5%, Meta down 2.6%, and Alphabet down 0.5%.
That ultimately led to the S&P 500 closing near flat with the Nasdaq down 0.5% yesterday. That amid another rotational play with the Dow closing marginally higher by 0.1%. So, what gives?
As mentioned before, we are getting stuck in to the phase of investors demanding to show me the money. After all the insane spending on AI infrastructure, it's time to see all of that translate to the bottom line. So, that is in part one reason for the exhaustion.
The fact that Micron doing the heavy lifting isn't enough to tide over the negative sentiment from earlier this week is perhaps a warning signal. It was definitely a surprise considering how you would think this is a market that would run on just about any good news.
So, the fact that it didn't or should I say couldn't does say a lot about the prevailing sentiment today. Could you imagine if Micron underdelivered on earnings expectations?
When you look at it that way, chipmakers doing extremely well means someone else is footing the bill for them. Or at least someone else is the one who is paying the price for that down the line.
In that lieu, all eyes then turn to the hyperscalers i.e. Alphabet, Microsoft, Meta. And in that sense, we circle back to the above narrative of show me the money.
I would argue that is one angle to take when looking at things today.
It's all certainly getting trickier, not least with a more hawkish Fed also being anticipated. Inflation pressures are also a major factor that may hit at some point. So, the outlook is not as rosy as it was before the turn of the year.
But all things considered, the AI rally has held up quite impressively even with the US-Iran conflict. However. it's now a question of whether there might be a squeeze back lower as some big names are looking vulnerable.
Of note, Microsoft is down to test the lows and key support from April last year with Meta also revisiting the lows from March this year now. These are testing times.
