Why Are Tech Stocks Falling Amid the AI Rally?

TL;DR

Technology stocks fell for a second day as investors questioned elevated AI valuations, earnings forecasts, and whether expected growth can justify current prices. The market retreat spread across global chipmakers, while Democratic election victories, a Supreme Court hearing on President Trump's tariffs, and the record government shutdown added political and economic uncertainty.

Transcript

5:00 IN NEW YORK CITY. I'M DANI BURGER WITH YOUR BLOOMBERG BRIEF. VONNIE QUINN ON ASSIGNMENT THIS WEEK. A GLOBAL CHIP SELLOFF, ERASING $5 BILLION IN VALUE OVER CONCERNS OF LOFTY VALUATIONS. IT WAS WINTER'S NIGHT FOR THE DEMOCRATS. THE PARTY SWEEPS MAJOR PARTY ELECTIONS WITH ZOHRAN MAMDANI TAKING THE MAYORAL VICTORY IN NEW YORK CITY. THE LE... Read More

Key Insights

• Technology valuations are facing greater scrutiny because investors had set exceptionally high expectations for companies associated with artificial intelligence. Even firms reporting profit and sales above forecasts could disappoint when their outlooks failed to demonstrate the extraordinary growth already reflected in their share prices.
• The global chip selloff erased roughly $500 billion in market value during the Wall Street session and continued through Asian trading. Samsung and TSMC were among the companies affected as concerns about semiconductor valuations, hyperscaler spending, circular financing, and the Federal Reserve outlook converged.
• AMD is making progress in artificial intelligence chips, including through a partnership with OpenAI, but it still faces a substantial competitive gap. Nvidia held close to 90% of the market for cutting-edge AI accelerators, while AMD's data-center business grew 22% and its legacy computer CPU business grew more than 70%.
• Democratic election victories reflected strong voter mobilization against President Trump, but they did not establish one universal party strategy. Zohran Mamdani won with a progressive base in New York City, while more moderate Democratic candidates prevailed in New Jersey and Virginia, suggesting that successful approaches may vary by district.
• California's Proposition 50 was presented by supporters as a counterweight to Republican-led redistricting in Texas. The wider redistricting contest could reshape races before 2026, although its actual electoral effects will depend on individual candidates and the independent contests conducted under the newly drawn maps.
• The Supreme Court tariff case concerns President Trump's use of a 1977 federal emergency law to impose sweeping tariffs after returning to office. Lower courts ruled against that use of the law, and the oral arguments were expected to reveal how the justices view the limits of presidential tariff authority.
• The government shutdown became the longest in American history when it reached day 36, with neither party showing an obvious path toward compromise. Unpaid workers were beginning to affect some flights, creating pressure on lawmakers as the busy Thanksgiving travel period approached.
• Market risk aversion extended beyond technology shares because investment-grade credit spreads widened, Bitcoin fell below $100,000 for the first time since summer, and bonds rallied. Small-cap stocks performed comparatively better, with the Russell gaining while major technology-heavy indexes remained under pressure.

Questions & Answers

Q: Why were technology stocks falling for a second day?

Technology stocks were falling because investors were reassessing elevated valuations and demanding stronger evidence that artificial intelligence spending would produce sufficient earnings growth. Disappointing forecasts from AI-related companies, uncertainty about continued hyperscaler spending, concerns about circular financing, and doubts about a December Federal Reserve rate cut combined with warnings of a possible broader market pullback.

Q: How large was the global semiconductor selloff?

The semiconductor retreat erased roughly $500 billion in market capitalization during the Wall Street session and continued into Asian trading. Samsung and TSMC were among the stocks taking significant hits. The decline was especially concentrated in technology companies whose valuations had risen well above historical averages on expectations for sustained demand from artificial intelligence investment.

Q: Why did AMD shares fall despite beating profit and sales expectations?

AMD shares fell because merely exceeding profit and sales forecasts was insufficient relative to the market's extremely high expectations. Investors scrutinized the gap between the company's current performance and the growth implied by its valuation. AMD's artificial intelligence data-center business grew 22%, but some investors wanted stronger expansion, particularly as the company continued trying to narrow Nvidia's large competitive lead.

Q: How does AMD compare with Nvidia in artificial intelligence chips?

AMD has gained meaningful endorsements, including a partnership to supply chips to OpenAI, but it still has considerable ground to make up. Nvidia held close to 90% of the cutting-edge artificial intelligence accelerator market. AMD's chief executive said the relevant business could generate tens of billions of dollars in additional revenue by 2027, though investors continued pressing for faster growth.

Q: What did the Democratic election sweep indicate about voters?

The results indicated that the Democratic base was highly mobilized and strongly motivated in opposition to President Trump. Democrats won important races in New York City, New Jersey, and Virginia. However, the winning candidates represented different approaches, with Zohran Mamdani drawing progressive support in New York while more moderate candidates succeeded in New Jersey and Virginia.

Q: What could Zohran Mamdani's victory mean for New York City?

Zohran Mamdani's historic mayoral victory could produce a direct political confrontation between New York City and the Trump administration. President Trump had threatened to withhold funding if Mamdani won, while Mamdani made resistance to the administration central to his campaign. His ability to fulfill his broader campaign promises remained uncertain and would need to be judged after taking office.

Q: What was the Supreme Court considering about President Trump's tariffs?

The Supreme Court was preparing to decide whether President Trump lawfully used a 1977 federal emergency statute to impose sweeping tariffs after returning to office. Lower courts had ruled against that use of emergency authority. The scheduled oral arguments were expected to provide insight into how the justices viewed presidential tariff power, with Treasury Secretary Scott Bessent expected to attend.

Q: Why could flight disruptions affect the government shutdown?

Flight disruptions could increase pressure for a settlement because some unpaid workers had begun missing work, affecting parts of the aviation system. The shutdown had reached day 36 with no obvious path to resolution, and the Thanksgiving travel period was approaching. Flight problems had also helped bring the previous longest shutdown to an end during President Trump's earlier term.

Summary & Key Takeaways

• Global equity markets weakened as technology and semiconductor shares faced renewed scrutiny over elevated valuations. The S&P 500 had fallen more than 1% in its worst session in nearly a month, roughly $500 billion in chip-market value was erased, Bitcoin moved below $100,000, credit spreads widened, and bonds rallied.

• Democrats won major races in New York City, New Jersey, and Virginia, demonstrating a highly mobilized party base. Zohran Mamdani secured a historic New York City mayoral victory and promised an aggressive response to the Trump administration, while California voters approved Proposition 50 amid a broader national fight over redistricting.

• Washington faced two major sources of uncertainty. The Supreme Court prepared to examine whether a 1977 emergency law authorized President Trump's sweeping tariffs after lower courts ruled against their use. Meanwhile, the government shutdown reached day 36, with no clear resolution and unpaid workers contributing to disruptions affecting some flights.