Investors are currently reacting negatively to the performance of AI-linked companies, leading to a sharp decline in the iShares Semiconductor ETF (SOXX), which has dropped over 23% in the past month. Major players like Intel and Cerebras Systems have seen their stock prices fall nearly 50%, highlighting fears that these companies are over-leveraging for capital investments.
In contrast, the Dow Jones Industrial Average, which has less exposure to technology, has risen 4.1% over the same period, indicating a rotation into sectors with limited AI exposure. Barclays strategist Venu Krishna noted that concerns about the sustainability of the AI infrastructure supercycle have triggered this sell-off, prompting a shift in investment strategies.
Despite the positive performance of the Dow, the heavy concentration of technology stocks in the S&P 500, which constitutes 37% of its total market capitalization, poses risks at the index level.
Additionally, Goldman Sachs traders have indicated that potential legislative changes following the recent midterm elections could further complicate the tech landscape, making investments in this sector more challenging.
BTIG's Jonathan Krinsky emphasized that the SOXX has closed below its 200-day moving average for four consecutive sessions, suggesting ongoing volatility and risk in the broader market