Nearly £400billion has been wiped off the value of artificial intelligence stocks in a market rout that fuelled fears the bubble is about to burst.
Heavy falls on Wall Street on Tuesday spread across Asia overnight and into Europe on Wednesday morning as ‘a sea of red’ swept through trading floors worldwide.
AI stocks bore the brunt of the sell-off with some £385billion wiped off the value of global chipmakers.
The slump came as hedge fund tycoon Michael Burry – whose success in predicting the subprime mortgage crash in the US was depicted the film The Big Short – placed an £845m bet against AI.
While London’s premier FTSE 100 index avoided the worst of the pain – helped by the fact that it is less AI-orientated than US and Asian markets – analysts warned of turbulence ahead.
And British savers are not immune to ructions overseas given the vast numbers with money tied up in tech stocks such as Nvidia and Palantir as well as investment funds that have soared on the tech boom.
A trader on the floor of the New York Stock Exchange braces for market tumoil
Neil Wilson, UK investor strategist at Saxo Markets, said: ‘Investors are showing signs of jitters for sure. AI valuations have become the focus for this selloff in global equities.’
A fall of more than 2 per cent on the tech-heavy Nasdaq in New York on Tuesday was followed by a slump of more than 6 per cent on the South Korean stock market in early trading overnight while Japan’s main benchmark tumbled more than 4 per cent.
South Korea’s Kopsi later closed down 2.8 per cent while the Nikkei ended the session 2.5 per cent lower.
Among the biggest fallers in New York were AI chipmaker Nvidia, which fell 4 per cent, while data group Palantir dropped 8 per cent. In Asia, Nvidia supplier Advantest fell 6 per cent, Japanese AI investor Softbank fell 10 per cent and Taiwan Semiconductor Manufacturing Company (TSMC) was down 3 per cent.
Bitcoin has also been hit, tumbling below $100,000 this week for the first time since June. The cryptocurrency is down more than 20 per cent since hitting a record high above $125,000 a month ago.
Chris Weston, head of research at Pepperstone Group, said: ‘It’s a sea of red across broad markets, and one that offers a gloomy and damp portrayal of risk.
‘We need to remain open-minded to the possibility that this could still further build. Simplistically, there aren’t many reasons to buy here.’
Analysts said there was no single catalyst for the sell-off, though Mr Burry’s bets against Palantir and Nvidia coincided with warnings from the bosses of Wall Street giants Goldman Sachs and Morgan Stanley that a correction was likely in the next one to two years.
This could see stock markets fall by between 10 per cent and 20 per cent – hitting the value of pensions, ISAs and other investments held by British savers.
JP Morgan Chase boss Jamie Dimon last month said he was ‘far more worried’ about a market slump than many others.
Despite the sell-off, Russ Mould, investment director at AJ Bell, said there was no sign of ‘widespread panic’ – at least for now.
In London, the FTSE 100 was down around 0.2 per cent in early trading on Wednesday while there were similar losses in Paris. The Frankfurt benchmark fell 0.6 per cent.
Big Short investor Michael Burry has taken out bets against Nvidia and Palantir
‘Market jitters around US tech stocks might have put investors on the edge of their seats, but the sell-off wasn’t severe enough to cause widespread panic,’ said Mr Mould.
He likened the situation on the markets to ‘a sharp bout of turbulence on a flight – unpleasant, but just for a moment’.
He added: ‘The fact a major sell-off didn’t occur across the whole of Asian and European markets following Wall Street’s wobble implies that we’re not at the start of the correction many people have feared.’
Nigel Green, chief executive of financial adviser deVere Group, said investors are starting to question whether record-breaking AI and tech valuations can be justified by profits.
‘AI and tech valuations have been expanding faster than earnings for some time,’ he said. ‘The innovation is genuine, but the profitability still has to prove itself. Markets are now asking for evidence rather than expectation.
‘What we’re witnessing is not panic, but price discovery after months of excessive momentum.’
Mr Green said a correction, while unsettling, would be necessary for sustainable growth.
‘A correction reintroduces discipline to markets,’ he said.
‘It forces investors to distinguish between companies driving real-world productivity and those trading only on potential.
‘Every major technological era — the internet, mobile computing, renewable energy — has experienced corrections that reset expectations. Each time, the strongest players emerge more profitable and more credible.
‘AI and tech remain the defining forces of this decade, but valuations must align with profits. This correction is the start of that alignment.
‘Investors should stay engaged, stay selective, and focus on where the promise of technology meets proof of performance.’
