Technology shares faced significant pressure at the end of a turbulent trading week, with industry leaders Apple and Nvidia both falling more than 2% on Friday. The broader tech sector struggled to find footing despite cooling inflation data, highlighting investor apprehension surrounding artificial intelligence investments and corporate spending.
Market Pressure Points
The January Consumer Price Index showed annual inflation at 2.4%, slightly below expectations and moving closer to the Federal Reserve's 2% target. However, this development failed to stabilize technology equities, with the Nasdaq Composite closing lower. Market participants remained focused on the timing of potential interest rate cuts while grappling with sector-specific concerns.
Portfolio strategist Garrett Melson of Natixis Investment Managers Solutions observed a fragmentation in what was previously a unified artificial intelligence investment theme. "Money is flowing toward perceived winners while anything vulnerable is getting dumped," he noted, describing a market increasingly discriminating between AI beneficiaries and potential casualties.
Earnings Scrutiny Intensifies
Investor skepticism appears centered on whether massive capital expenditures in artificial intelligence infrastructure will generate adequate returns. "We see this as a 'prove it' year for AI," stated Jack Herr, primary investment analyst at GuideStone Funds, referencing growing questions about how quickly these investments will deliver financial results.
The phenomenon has earned the label "AI scare trade" among market observers. Barclays equity strategist Emmanual Cau characterized the sentiment as "sell first think later," with investors rapidly exiting positions in sectors perceived as vulnerable to AI-driven disruption.
Apple shares experienced particular volatility, tumbling approximately 5% during Thursday's session in what represented their steepest single-day decline since last April. Meanwhile, regulatory attention intensified elsewhere, with the Federal Trade Commission reportedly expanding its review of Microsoft's business practices regarding product bundling and cloud strategies.
Looking Ahead
U.S. equity markets remain closed Monday for the Washington's Birthday holiday, with trading scheduled to resume Tuesday. Attention then shifts to Nvidia's upcoming financial report on February 25, widely anticipated as a crucial indicator of both AI investment appetite and Big Tech's willingness to sustain current spending levels.
Nvidia's results arrive amid notable corporate developments, including CEO Jensen Huang's unexpected cancellation of a scheduled appearance at an AI summit in India. The chipmaker cited "unforeseen circumstances" without providing additional details.
