Traders work on the floor of the New York Stock Exchange.
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Stock prices fell on Tuesday, weighed down by declines in artificial intelligence stocks, including: PalantirInvestors were increasingly concerned about the valuations of stocks leading the bull market.
of S&P500 It fell 1.17% to close at 6,771.55. Nasdaq Composite It fell 2.04% to end at 23,348.64. of Dow Jones Industrial Average It decreased by 251.44 points (0.53%) to 47,085.24.
Palantir shares fell about 8% even as the software company beat Wall Street expectations for the third quarter and provided strong guidance on the back of growth in its AI business. The company’s stock has risen more than 150% this year and trades at a forward P/E of more than 200 times. That means investors in this name and other AI stocks are hoping the company will continue to significantly raise its earnings and revenue forecasts to justify investors continuing to buy the stock.
oracleboasts a forward P/E ratio of over 33 and is down nearly 4%, chipping away at this year’s nearly 50% gain. chip manufacturer AMDhas more than doubled this year, but has fallen nearly 4%. Other AI-related stocks Nvidia and Amazon I also pulled back.
The rise in AI stocks has pushed the S&P 500’s forward price-earnings ratio to more than 23 times, near its highest level since 2000, according to FactSet. As these stocks have driven the overall market to new heights in recent months, Ameriprise’s Anthony Saglimbene said in an interview with CNBC that valuations are starting to get “very high” absent a rebound.
“We haven’t really seen any major correction or real pressure on stock prices since April,” said the firm’s chief market strategist. “Earnings are good, but I think investors are looking at the pace of (capex) investment from some of these major big tech companies and starting to ask themselves, ‘Can we expect earnings growth next year to justify the level of capex?’
Investor confidence further eroded on Tuesday with comments from the chief executives of Goldman Sachs and Morgan Stanley. Overnight, Goldman’s David Solomon said, “We are likely to see a 10% to 20% drawdown in the stock market over the next 12 to 24 months.” Additionally, Morgan Stanley CEO Ted Pick said, “We should also welcome the possibility of a drawdown that is not due to some type of macro cliff effect, a drawdown of 10% to 15%.”
“While the fundamentals remain positive, we fully expect to see some period of pullback,” Sagrimbene said. “We’ll have to see if that translates into a 5%, or 10%, or 15% correction by the end of the year.”
Wall Street is coming off a mixed trade on Monday, with the S&P 500 and Nasdaq both ending higher, while the Dow Jones Industrial Average fell more than 200 points. More than 300 broad-market index stocks closed in the red in the previous session, raising concerns about weak breadth and high tech concentration, especially since fewer S&P 500 stocks rose last month than fell.
“The market has been pretty tight over the last few months,” Sagrimbene added. “If the momentum in AI and technology slows or slumps in the short term, other areas that are performing as well are actually (not), where should we go when we don’t have a lot of hard data on the economy and profitability across the rest of the S&P 500 is not as strong?”
