The Nasdaq had its worst day of 2024 on Wednesday. Shares of tech giants fell sharply after Google’s and Tesla’s second-quarter earnings — and hefty AI-related costs — disappointed investors.
After more than a year of witnessing the rapid ascent of big tech stocks — earning themselves the latest Wall Street moniker, the “Magnificent Seven” — major companies have started to see their share price growth ease. Excitement over cooling inflation and soon-to-be interest rate cuts from the Federal Reserve have investors reallocating their funds to equities in sectors that have struggled in the tougher macroeconomic environment of the last few years. Investors also pulled out of tech stocks over worries that AI hype will end and send tech stocks plummeting. The weaker performance of Google and Tesla fueled those fears and other company-specific concerns.
High AI capital expenditures at Google and the disappointing performance of its YouTube division sent Alphabet’s stock down. Tesla shares have proven incredibly volatile for the whole of 2024 as the EV-maker grappled with recalls, robotaxi delays, and other issues. Investors were especially disappointed by the company’s tanking profits due to recent EV discounts and heavy AI spending.
But what brought down the Nasdaq yesterday will ease, and tech companies’ shares won’t stay down for long, according to Wedbush analyst Dan Ives.
“The tech sell-off yesterday was a brutal one and has clearly created white knuckles on the Street after a meteoric rise in tech stocks over the last 18 months,” Ives said in a note to investors Thursday. “Ironically, the Alphabet and Tesla results which sparked this sell-off further confirmed the massive cloud and AI build outs which we believe are fueling the 4th Industrial Revolution in front of our eyes.”
Ives added that his team thinks “this tech sell-off will be short lived as the Street better digests results and commentary from the broader tech sector over the coming weeks during earnings season. This is the start… not the end of this tech bull run in our view fueled by this AI tidal wave of spending on the doorstep.”
Microsoft reports earnings on July 30, Meta on July 31, and Amazon and Apple on Aug. 1.
Shares of Tesla began recovering already on Thursday, rising 2% in morning trading, while Google’s stock price sank further.