AI data center trade dented in the first trading session of September
The hyperscalers writing the checks for AI data centers are the heaviest weight on stocks Tuesday, but others hitched to the investment boom are falling too.
Stocks hitched to the data center boom were key contributors to the market slump Tuesday, with Nvidia and the so-called hyperscalers — Amazon, Microsoft, Meta, and Alphabet — among the biggest contributors to the downturn in the S&P 500.
But the weakness in the AI trade goes beyond those companies writing the sizable checks needed for AI data centers, stretching up and down the data center value chain.
Shares of semiconductor equipment makers like ASML are down, as are top chip foundries like TSMC. Non-Nvidia chip stocks like Advanced Micro Devices, Lam Research, and Qualcomm are slipping, as are AI energy plays like Talen Energy, NRG, and GE Vernova. Finally, makers of the wires, servers, and racks — like Cisco, Vertiv Holdings, and Dell — that are eventually supposed to fill these hangar-like structures are also dropping.
The cause of Tuesday’s slump? Tough to say.
True, the Trump administration’s decision to strip TSMC of its ability to ship gear to its manufacturing base on the Chinese mainland has injected some uncertainty into the global tech sector. But TSMC is holding up better than most of these aforementioned stocks!
The breadth of the sell-off seems more along the lines of a momentary (and understandable) crack in confidence that sometimes emerges in even the most unanimous bets on Wall Street. That would include the staunch belief among investors, traders, and companies that AI is going to fundamentally reshape the US economy, creating untold riches for companies in the industry.
Moments of doubt make some sense. After all, while AI has shown a lot of promise, for the moment it remains more of a market phenomenon than an economic one. That is, despite its outsized role in the stock market, we haven’t seen the explosion of profits and productivity that would be needed to justify all this investment.
“The AI boom has had less of an impact on the economy than widely believed,” analysts at BCA Research wrote last month. “This may eventually change, but the risk is that investors grow impatient before it does.”
Hedge fund manager and market-making maven Ken Griffin seems to agree, telling Barron’s recently, “There is one salient issue in the equity market now: how much of the hype of AI will translate into the reality of a more productive, more prosperous future?"
Nobody, not even Ken Griffin, knows. But in the meantime, the bet continues to build. The latest data on US construction spending released on Tuesday (chart above) shows that the boom, while slowing a bit, is still very much alive.
