The stock market’s weak reaction to Tuesday’s Anthropic deal could signal something even worse for investors: the beginning of an unwinding of the artificial intelligence trade. Anthropic became the latest company to sign a grand AI deal this week after Microsoft and Nvidia announced they would invest a combined $15 billion in the startup. The investment boosted Anthropic’s market valuation to the $350 billion range, an impressive increase from its September valuation of $183 billion. If it goes public, OpenAI’s competitors will be bigger than American Express, McDonald’s, and PepsiCo. But the stock market’s reaction to the Anthropic deal was telling. Major stock averages continued their recent technology-led decline on Tuesday, with the S&P 500 losing for the fourth straight day to close 0.8% lower, while Microsoft and Nvidia also underperformed. On Tuesday, Microsoft fell 2.7% and Nvidia fell 2.8%. That’s different from the reaction to previous announcements. In September, the stock rose nearly 4% after NVIDIA injected $100 billion into OpenAI. That same month, a $5 billion investment by Nvidia helped Intel record its best day since October 1987. Reversal in behavior “We’re starting to see a reversal in market behavior,” said Peter Cawley, chief market strategist at Pave Finance. “Where they were excited about new interlocking deals and data center additions, this is the first time we’ve seen that reversal, almost too much of a good thing. So people are starting to worry that these companies are not allocating their resources properly.” “Now, this may be a one-day thing, this may be a sales peak, but this is not a good tone,” Corey continued. “This is a very bad market situation.” Traders at JPMorgan made a similar point. “In recent days, positive AI headlines alone have been enough to recoup profits, even on days when stock prices started low,” the memo said. “This trend could break as investors worry about the cyclicality of AI returns,” the bank’s trading desk said. Investors have been trimming their holdings in technology stocks throughout the month, with the Nasdaq Composite index down nearly 5% in November. There may still be room for the stock market to rise at the end of the year if Nvidia’s results on Wednesday satisfy investors and the lagging non-farm payrolls numbers turn out better than feared. Monitoring Support In the S&P 500, technicians are closely monitoring support at 6,550. If this level holds, it would be a bullish signal for the stock. But Pave Finance’s Corey worries that the reaction to the Anthropic deal could be a “tipping point” for stocks, potentially leading to a sustained bear market next year as valuations for tech companies come back to earth. A major decline in technology could be fatal for a market that has remained resilient thanks in part to massive spending to build AI. This capital investment pushed up stock prices and supported consumption by high-income earners. Even true believers in AI worry that linked trading like Anthropic’s will leave more companies vulnerable to failure and reek of excess. Increased bond issuance to finance AI construction also introduces new risks to markets and the economy. And skeptics worry that there won’t be much return in the form of profits from large-scale language models. “I don’t think it’s worth the hundreds of billions of dollars that they think they can get back,” said Kim Forrest, investment director at Boke Capital Partners. “Never invest in science,” she said. “So this is one thing I really learned: Don’t fall in love with science. What problem are they solving? Does it add value? There’s a winner. If not, it’s just interesting science.” If AI is figured out, stock prices are likely to fall “significantly,” Forrest said.
