This is not the first time stock markets have wobbled in recent months due to concerns over a tech bubble.
asserted
markets → wobble → bubble
What has happened?
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What → happen → ?
Shares on Wall Street plunged on Thursday , in a rout driven by AI and technology stocks that extended to Asia and Europe on Friday.
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that → plunge → Friday
More than $3.2tn (£2.4tn) was wiped from the value of the US stock market on Thursday – bigger than the annual output of the Canadian economy – after the tech-heavy Nasdaq fell by 5.5% and the blue-chip S&P 500 fell by 4.4%.
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S&P → wipe → %
After months of warnings over the valuations of AI companies – amid fears of tinderbox conditions in the world economy fuelled by the Iran war and concerns that the tech bubble could burst – the trigger for the sell-off has been attributed to the Democrats’ sweeping US midterm election victory .
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trigger → fuel → victory
Why did the midterms trigger a sell-off?
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midterms → trigger → off
Investors are predicting that a Democrat-controlled Congress could lead to tighter control of AI and datacentre construction – slowing development in one of the engines of global economic growth and corporate earnings on the stock market.
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Congress → predict → market
Challenging billionaire power and calling out Wall Street and big tech were the rallying cries of many Democrats in the midterm elections.
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Challenging → challenge → elections
Moratoriums on datacentre construction were effectively on the ballot in several states amid growing public opposition to the building of vast, resource-hungry facilities.
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Moratoriums → grow → facilities
Highlighting the stakes, the SpaceX and Tesla CEO, Elon Musk , set a record for election spending after pouring nearly half a billion dollars into backing Republicans – and moved his personal residence to Texas, the leading state for datacentre construction.
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CEO → highlight → construction
After the midterms shares in both his companies fell sharply.
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shares → fall → companies
Fears of an AI bubble have been growing for some time, given the astronomical rise in tech company valuations, which some analysts said had become increasingly detached from reality.
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analysts → grow → reality
One measure of whether a market is overvalued, the cyclically adjusted price-to-earnings (Cape) ratio, had risen to its highest level since 2000, showing that the US stock market was unusually highly valued relative to profits.
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market → overvalue → profits
Highlighting the disconnect, shares in Alphabet, the Google parent company, plunged last week after it reported lower than expected profits , wiping more than $500bn from its value.
More than $3.2tn (£2.4tn) was wiped from the value of the US stock market on Thursday.
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3.2tn → highlight → Thursday
Opinion polls show most Americans are opposed to US datacentre construction , while governments around the world have encouraged citizens to stockpile for multiple eventualities including cyber-attacks.
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governments → show → attacks
Ben Barringer, the head of technology research at Quilter Cheviot, said: “It is too easy to say that the Democrats will be bad for datacentres.
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Democrats → say → datacentres
“Yes, there will be a pause in the buildout and delay in approvals, but if you go off the words of the new Texas governor, Gina Hinojosa , they are likely to be more pragmatic and ensure resources are more fairly allocated.
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resources → go → governor
What does it mean for households?
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it → mean → households
What happens to the share prices of the US tech giants has enormous consequences for savers worldwide.
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happens → happen → savers
The “magnificent seven ” tech stocks – Nvidia, Apple, Google, Microsoft, Meta, Amazon and Tesla – account for more than a third of the S&P 500, meaning that funds that track this index are directly tied to their performance.
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that → account → performance
AI has been a big growth driver, with the tech boom helping to soften the hit to the world economy from the war in the Middle East.
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boom → help → East
The prospect of a sustained tech sell-off could prove a big setback, in a blow to countries that have pinned their hopes on the AI revolution creating jobs and generating a productivity boost to overcome years of relative economic stagnation.
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revolution → prove → stagnation
In response to the inflation shock from the Iran war, central banks around the world have been raising interest rates.
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banks → raise → rates
However, an economic slowdown could force a rethink amid the risk of stagflation, when weak growth is accompanied by fast-rising consumer prices.
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growth → force → prices
What happens next?
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What → happen → ?
Financial markets are prone to volatile swings and investors are divided about whether things will get worse from here.
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things → divide → swings
Many were, however, worried a big crash was overdue – and when investors begin to lose confidence, it can become self-reinforcing.
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it → worry → confidence
Barringer said: “A virtuous circle could quickly turn into a vicious one, and they [investors] must now ride it out until the direction of travel becomes clearer.”
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direction → say → travel
For some, the latest tech rout represents a reset rather than a lasting downturn.
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rout → represent → downturn
Demand for AI and semiconductors will not vanish overnight: new tools will continue to be launched, and datacentres will be built.
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datacentres → vanish → AI
Mark Haefele, the chief investment officer at UBS Global Wealth Management, said the AI investment cycle should remain intact, despite the latest “market indigestion”.
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cycle → say → indigestion
“We do not think fundamentals justify a prolonged downturn,” he added.
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he → think → downturn
The Aporia
