And you thought this week was painful for the technology sector.
If history is anything to go by, the challenges of technology may be just beginning!
The S&P 500 technology sector has seen six declines of 10% or more since 2023, notes Truist’s chief market strategist (chart below), including the current one. But four of the six declines ranged between 14% and 27%.
“It’s no longer just about the strength of demand for AI. Wall Street is increasingly demanding proof that massive investments will result in sustainable profits and cash flow,” says Lerner.
That’s putting things lightly.
The AI business took a serious beating Friday, with more than $1 trillion in market value wiped off as investors worried about the weakening cash flow profiles of big tech as they spend aggressively on AI. The news on the liquidity front deteriorated as the weak disappeared.
Google posted negative free cash flow in the third quarter during its midweek report. That was followed by another negative call on free cash flow when Amazon reported late Thursday.
A week ago, Meta reported negative free cash flow for the first time since 2012.
None of these big tech names have suggested that their AI spending will slow down, quite the contrary.
The Nasdaq 100 fell 3.4% while the broader S&P 500 fell 1.8%.
The S&P 500 technology sector fell more than 4.2%.
“The disruption caused by AI is on full display in technology outcomes and in the uncertainty of which names and sectors will be the disruptors versus the disrupted,” said Dan Ives, partner at Yorkville Ives. “Now is not the time to panic and sell all the tech winners and head to the bunker… as painful as this week is, the underlying signs of AI development in business are actually more validated than a week ago… given what we heard from the hyperscalers combined with last week’s Meta and SpaceX (SPCX) numbers. That said, tech players raising money through the bond market, stock offerings, ATMs, etc. put additional pressure on the sector and added to the surplus seen this week.
Brian Sozzi is the editor-in-chief of Yahoo Finance, host of the Sozzi unleashed morning show, the ‘Powerful actors with Brian Sozzi podcast and member of the Yahoo Finance editorial leadership team.
Gn bussni
