Tech stocks rout deepens as NASDAQ ends 1.5% lower; Google posts strong results, boosts AI spending

The technology stocks continued the rout on Wednesday as new AI models are expected to become a threat to their business models, making them obsolete. The NASDAQ erased another 1.5% on Wednesday, followed by the S&P500, as tech stocks dragged the markets lower. While Dow Jones gained 0.53% after investors preferred rotating to other sectors from highly valued tech stocks.

Google earnings

On the other hand, Alphabet Inc, the parent company of Google, reported strong advertising revenue and asserted on heavy spending in AI this year. The Alphabet Inc share price fell over 2% on Wednesday as investors sounded cautious on profitability over increased AI spending.

The numbers released on Wednesday marked Google's third consecutive quarter of digital ad growth of more than 10% from the previous year, while also posting more than 30% sales growth in its division that powers data centres for AI services.

Alphabet's fourth-quarter profit rose 30% YoY to $34.5 billion, while revenue climbed 18% YoY to $113.8 billion

Tech stocks rout deepens

The semiconductor manufacturer, Advanced Micro Devices (AMD) shares fell over 17% on Wednesday, after the company’s earnings outlook failed to boost investor sentiment. The higher R&D spending on AI and related expenditures could remain a drag on margins.

The higher AI-infrastructure-related spending is fundamentally positive for AI stocks like Nvidia, Micron and other data centre-related companies. However, the shares closed in deep red amid the broader rout in technology stocks.

The shares of Qualcomm, a leading mobile processor manufacturer, fell over 10% in the extended trading session as the earnings missed the consensus street estimates for the quarter. The company said, shortage of chips is expected to dampen the mobile phone sales and broader device demand.

Broadly, Wednesday’s trade in the US markets was dominated by bearish sentiment for software stocks as AI disruption could eat into their business models. On the other hand, the AI-related stocks too witnessed selling pressure as higher spending on AI infrastructure could prove to be a drag on the margins.