(Feb 6): US stocks started to rebound on Friday as dip buyers capitalised on the artificial intelligence-fuelled (AI) plunge in technology stocks.
The Nasdaq 100 Index advanced 1% at 9.44am in New York, with the benchmark looking to rally from its biggest three-session skid since April. The S&P 500 Index advanced 1%, while the Cboe Volatility Index hovered at around 20.
“Stocks are off to a volatile start in February and earnings season so far has not been enough of a catalyst to push stocks to new highs,” said Clark Bellin, president and chief investment officer at Bellwether Wealth. “Earnings expectations have been so high, and it’s been challenging for companies to clear such a high bar,” he explained.
It has been a rocky week for both the S&P 500 and Nasdaq 100. A new AI automation tool from Anthropic sparked a US$285 billion rout in stocks across software, financial services and asset management sectors on Tuesday, kicking off a three-session slide as investors expressed concern over disruption from the technology.
Eye-watering spending plans on AI from Big Tech names, including Alphabet Inc and Amazon.com Inc only fuelled those worries. Four of the biggest technology companies together have forecast capital expenditures that will reach US$650 billion in 2026, which is earmarked for new data centres and the equipment needed to run them.
See also: Traders chase ‘AI resistant’ stocks as disruption fear hits tech
“Our message to investors is to remain opportunistic when stocks dip, but not necessarily during every dip,” Bellin said. This year “should still be a positive year, with plenty of opportunities to buy stocks on sale”.
While stocks are seeing signs of a slight recovery, Miller Tabak’s Matt Maley cautions that the issues around software companies and the profitability of the AI industry are not going to disappear.
If tech stocks “roll back over in a material way at some point over the next week or two there will still be some meaningful risks to the tech sector going forward,” said Maley.
See also: BofA’s Hartnett says midcaps best play ahead of US midterms
Russ Mould, investment director at AJ Bell, adds that the slump in tech and AI names could potentially be part of a wider portfolio rebalancing.
“It does not take much to create a panic in widely-owned stocks that have done well and where use of margin may be common, especially if their valuations stand at a big premium to wider markets,” said Mould. “And this is where we may be right now when it comes to the AI hyperscalers, software-as-a-service providers, crypto and even silver and gold.”
Earnings roll on
Amazon shares plunged 8.7% on Friday, with the company announcing plans to spend US$200 billion this year on data centres, chips and other equipment. The commitment worried investors that the bet on AI may not pay off in the long run.
Bloomberg’s gauge for the Magnificent Seven fell 0.6%.
“This level of capex is expected to put pressure on free cashflow, though one can argue that Amazon has a great track record of managing through deep cycles in the past and coming out as a winner on the other side,” said Mamta Valechha, consumer discretionary analyst at Quilter Cheviot.
In response to Amazon’s spending pledge, makers of gear used in AI computing rallied. Nvidia Corp, Advanced Micro Devices Inc and Broadcom Inc all rose.
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Meanwhile, Bill Holdings Inc jumped 18% after the application software company boosted its full-year forecast. Roblox Corp surged 3.8% after fourth-quarter results beat expectations on key metrics.
Cryptocurrency-linked stocks rallied as Bitcoin rebounded after a selloff that briefly dragged the token to a more than 50% retreat from its October peak.
Uploaded by Felyx Teoh
