Investors around the world are bracing for a battle for long-term and short-term wins as artificial intelligence stocks plummet.
AI darling Nvidia After Wednesday’s bell, the companies announced strong financial results, energizing an otherwise sluggish market, sending their own stocks soaring and selling related stocks alongside them. However, the gains quickly reversed on Thursday, with Nvidia ultimately closing 3% lower.
U.S. chip makers’ earnings initially looked strong enough to dispel concerns about an AI bubble, but economic speculation put global investors back on the defensive as hopes for a December interest rate cut by the Federal Reserve faded. The UK’s long-awaited Autumn Budget is also expected to be announced next week.
Asia-Pacific markets plunged more than 10% on Friday, led by tech giant SoftBank. European stocks followed suit, opening negative. But within the U.S., appetite may already be reversing due to higher futures prices.
“I think the market is pretty confused as to why this is happening,” Ozan Ozkrar, founding managing partner at Tanto Capital Partners, told CNBC’s “Squawk Box Europe” on Friday.
He said market movements this year have been driven by sentiment, momentum, AI and innovation, and “are also sprinkled with geopolitical risk.” “While I don’t know the specific reason why Nvidia’s stock price has fallen given its strong performance, it’s not all that surprising to me, as it’s only a matter of time before sentiment changes and we are simply living in a more uncertain world.”
No catalyst is needed either, he added. But “the most dangerous situation we could face” is a sustained decline, even a slow burn, Özkral warned, which could cause portfolio managers to book profits and drain cash.
Asset managers don’t like to hedge their bets because they’re dependent on the compensation cycle, he said. “Nobody cares about the long term. Everyone is dead in the long term. They don’t even care about the medium term. It’s all short-term cycles,” he said.
“But the reality is, it’s the end of the year, people need to get their bonuses, and there’s no point in being bearish unless we see sustained levels of decline.”
Investors holding cash in AI ETFs and indexes may be losing money due to a combination of year-end risk management and continued concerns about the AI bubble. Stephen Yu, investment director at Blue Whale Growth Fund, which has a stake in Nvidia, said people who may have made a lot of money trading AI will likely want to exit and sell.
Fed rate cut
The last big news the market is looking forward to is the Fed’s interest rate decision in December. Investors had been expecting a rate cut, but opinions are divided on whether it will materialize.
Mr. Yee said that while the People’s Bank of China’s choice not to cut rates is “not a problem,” investors who were expecting a rate cut may pause and recalibrate for next year.
“I think people probably just want to distance themselves from President Trump (Donald) and avoid risk. Who knows what President Trump will do next?” he added.
Yiu said it’s difficult to discern AI winners and losers amid all the hype, but he hopes to see differentiation between companies investing in AI and those receiving the money, known as AI infrastructure. As the market fluctuates, Yu is betting on the latter.
