The day of reckoning arrived on Wednesday for the tech industry, as a seismic market rout erased a staggering $1 trillion in value from U.S. equities, led by the declines in shares of Tesla and Alphabet that marked the worst day for the S&P 500 and Nasdaq Composite since late 2022.
At the heart of the $1 trillion market rout were concerns over the unchecked spending spree leading cloud computing companies, referred to as hyperscalers, in the articial intelligence (AI) race.
Speaking to Bloomberg Alec Young, chief investment strategist at Mapsignals, said:
Investors realize that the payoff is going to take time to materialize and the hyperscalers’ earnings are being hurt in the short term by how much they’re spending on it.
Tesla, for example, is down nearly 10% for the week after the electric vehicle maker endured its largest one-day drop since September 2020 as a result of CEO Elon Musk revealing that aggressive inventory liquidation to boost second-quarter deliveries came at the expense of profit margins.
The company, which has 9,720 BTC worth over $630 million on its balance sheet, saw a 5% delivery drop and a 14% decline in production in the second quarter of the year, while revenue rose 2%.
Google’s parent company Alphabet also faced headwinds, with revenue from YouTube missing expectations even as Google Search, Advertising, and Cloud revenue rose. The firm revealed a significant increase in capital expenditures, primarily for new data cneter infrastructure and its robotaxi operation, Waymo, as Fortune reported.
The drop dragged cryptocurrencies along, with Bitcoin losing more than 2% of its value in the last 24-hour period, while Ethereum dropped 7.8% despite the recent launch of spot Ethereum exchange-traded funds (ETFs) in the United States.
These funds saw $133 million in net outflows on their second day of trading, down from over $100 million inflows on their debut. Trading volume for these funds also declined from their debut peak above $1 billion, with approximately $951 million changing hands on Wednesday.
Featured image via Pixabay.
