As AI development continues to accelerate, the associated infrastructure expenses have become a growing burden for these companies, making them particularly vulnerable in the face of potential market corrections.
Nvidia, the dominant player in the AI chip market, faced a tough end to August, with its market value decreasing by 7.7% to $2.92 trillion, despite record-breaking earnings.
Last month, Nvidia reported record revenues of $30 billion for Q2 2024, more than doubling its earnings from the previous year. Revenues increased by 15% compared to the last quarter (QoQ) and surged by 122% compared to the same period last year (YoY). The company’s net income climbed to $16.6 billion, reflecting a 12% QoQ rise and a 168% YoY growth.
Despite strong demand for its products, the company’s projections for third-quarter gross margins and revenue fell short of market expectations, disappointing investors.
Nvidia’s role in both enabling and benefiting from AI development has put it under intense scrutiny, with its stock performance closely tied to the fortunes of the broader AI sector.
“It’s less about just beating estimates now,” says Matt Britzman, a senior equity analyst at Hargreaves Lansdown.
“Markets expect them to be shattered and it’s the scale of the beat today that looks to have disappointed a touch.”
Alphabet, the parent company of Google and YouTube, experienced a 4.7% decline in its market value. A slowdown in YouTube’s advertising revenue, coupled with a recent antitrust ruling against Google and the emergence of AI-based search engine competition from OpenAI, contributed to this decline.
Amazon also faced a setback, with its market value falling by 4.5%. The ecommerce and cloud giant has been grappling with slowing online sales, which has dampened investor sentiment.
As consumers shift their spending habits and the post-pandemic surge in online shopping fades, Amazon’s growth prospects have become less certain.
Tesla, the world’s most valuable automaker, saw the sharpest decline among the major tech firms, with its market capitalisation falling by 7.7%.
The drop followed weaker-than-expected second-quarter earnings and the announcement that Canada plans to impose a 100% tariff on Chinese-made electric vehicles (EVs).
Tesla, which began shipping EVs from its Shanghai plant to Canada last year, now faces potential profit impacts as it may be forced to shift production to its higher-cost US facilities.
In the second quarter, the company’s net income plunged by 45% to $1.47 billion, falling short of Wall Street expectations. Elon Musk, Tesla’s CEO, made the surprising announcement of postponing the robotaxi launch from August to October. Despite the delay, Musk remains bullish on the project, claiming it could potentially propel Tesla’s valuation to $5 trillion.
While many tech giants have faced challenges in recent months, there are also some bright spots.
Berkshire Hathaway, the conglomerate led by Warren Buffett, achieved a significant milestone in August, closing above $1 trillion for the first time.
Meta’s market value also surged by nearly 10% after the company exceeded market expectations for its second-quarter revenues.
European tech stocks
Despite a challenging second quarter and a recent market downturn, Bank of America analysts are maintaining a positive outlook for several European technology stocks. They predict that these companies will experience accelerated growth in the latter half of the year.
Bank of America reiterated its buy ratings on several European tech stocks, including:
- Software: SAP, Sage and Dassault Systemes
- IT Services: Sopra Steria, NetCompany and Alten
- Payments: Adyen, Nexi, Wise and Worldline
The bank’s analysts believe that AI-driven demand will be a significant catalyst for future investments, particularly in cloud computing. Additionally, they estimate that cloud industry revenues will grow by 26% in 2024, accelerating from 22% in 2023.