Investors are wrestling with the key question of whether the recent slide in technology share prices is the beginning of a sustained slump in AI related stocks, or a normal and necessary pullback.
Anthropic’s decision on pulling the trigger on its highly anticipated IPO next month, and the valuation to try for, hinges on the answer to this question.
The latest reports have said the valuation will be trimmed to $1.5trn from the $2trn initially targeted.
The price slide through the back end of last week appears to have reversed as the new week starts, with names such as Nvidia, Intel, AMD and Coreweave all comfortably into the green on Monday, 19 October.
While Anthropic is clearly the biggest single question mark, the regular drumbeat of earnings season is a little louder than usual.
Earnings expectations for tech names are high, as they have been for much of this year. In most cases the companies have met or exceeded them, despite the headwinds of war, stubborn inflation and a Federal Reserve with no room for rate cuts.
If this trend continues, the AI trade could well resume its march higher and take global equities as an asset class with it. Big misses by the tech giants could easily tip things the other way.
Jemma Slingo, pensions and investment specialist at Fidelity International, said: “It has been a bumpy few days for the stockmarket, as investors appeared to lose faith in artificial intelligence.
“This week is off to a stronger start, however, and a new round of company earnings could help to restore confidence.”
Slingo noted the sell-off stretched well beyond the US, with South Korea’s memory chip giants Samsung and SK Hynix seeing steep sell-offs.
“Things are calmer this morning; South Korea’s Kospi index has recovered slightly, and the S&P 500 is expected to open higher. But the turbulence underlined the importance of diversification.
“This week is all about company earnings,” she added. “Wall Street banks have already got things off to a reassuring start. Investors worried the banking boom had stuttered to a halt but, once again, earnings proved resilient.
“Although fixed income divisions are under pressure, equity trading is still driving up profits at the likes of JP Morgan and Goldman Sachs.
“More companies will enter the fray this week. Meta, which owns WhatsApp and Instagram, is likely to steal the show on Wednesday. Its results follow last week’s launch of Muse, a personal AI assistant that has taken the world by storm. But investors will focus on a familiar question: will the vast sums being poured into AI ultimately pay off?
“Elsewhere, look out for clues about the financial health of consumers. American Express, Procter & Gamble and Netflix are all due to report this week, shedding light on spending habits on both sides of the Atlantic.”
