Market Jitters: Big Tech Stocks Tumble Over AI Concerns and Recession Fears

Apple and other major tech companies saw significant sell-offs on Monday due to U.S. recession fears and Berkshire Hathaway's sale of half its stake in Apple. This sharp decline deflated a rally fueled by AI optimism, leading to a substantial drop in stock market value for some of the biggest tech names.

Apple and other heavyweight companies sold off on Monday as U.S. recession fears and Berkshire Hathaway's sale of half of its stake in the iPhone maker further deflated a months-long rally fueled by optimism about AI. The declines saw Apple, Tesla, Alphabet, and Amazon each dropping more than 4%, while Nvidia tumbled 7%, and Microsoft and Meta Platforms fell 3% among rising concerns over massive spending to build AI infrastructure.

Collectively, these seven corporations were on track to lose about $800 billion in stock market value for the session, according to LSEG data. "Expectations have arguably become too high for the so-called Magnificent Seven group of companies. Their success has made them untouchable in the eyes of investors and when they fall short of greatness, out come the knives," stated Dan Coatsworth, investment analyst at AJ Bell.

Chip stocks also took a hit, with the PHLX semiconductor index down 2.6%, bringing its loss over the past three sessions to 14%. Three consecutive days of heavy Wall Street selling followed a weak U.S. payrolls report on Friday, pushing global investors towards safer assets and increasing bets that the Federal Reserve will have to cut interest rates to prevent a recession.

Over the weekend, Warren Buffett's Berkshire Hathaway announced it had halved its stake in Apple, raising concerns about the tech industry's future. Adding to Nvidia's woes, reports from the Information and Financial Times suggested design flaws and production issues could delay the release of its new AI processor.

After propelling Wall Street gains for more than a year, major tech stocks have recently faced pressure due to concerns that the cost of building AI-optimized data centers is higher than anticipated, with delayed returns on this investment. Stocks for Amazon, Microsoft, and Alphabet have notably fallen after earnings reports hinted that their profit margins could suffer from the billions spent on AI.

Despite the sell-off, Nvidia shares have nearly doubled this year. Following the recent slump, Microsoft and Amazon are still up 5% in 2024, and Apple has risen 7%. Tesla, however, has dropped 21% year-to-date. Some analysts view the recent slide as an investment opportunity, pointing towards potential long-term returns from AI investments and these companies' strong market positions.

"Our playbook for 24 years covering tech stocks on the Street is to handhold investors through panic and irrational global sell-offs to own the best tech names and winners driving growth themes," said long-time tech bull Dan Ives, analyst at Wedbush Securities.

(With inputs from agencies.)