Turbulence in the Tech Sector: AI Stocks in a Tailspin

Artificial Intelligence (AI) stocks are currently experiencing a downturn, just a few weeks after a broader market slide in the technology sector. Prominent AI companies have suffered double-digit percentage losses within 24 hours, indicating worrisome market uncertainty. NVIDIA is particularly affected, with its market capitalization shrinking by almost $300 billion. The NASDAQ Composite Index fell by more than 3% in a single trading day. The inflated valuation levels of AI stocks are another factor contributing to the recent value decline, which wiped out almost a trillion dollars from the sector within a few hours. Regarding the leading AI chip manufacturer, there are reports of growing concerns from U.S. authorities about the company's near-monopolistic position in the provision of GPUs. Despite collaborations with tech giants like Google, Amazon, Microsoft, and Meta, the company now faces a potential antitrust investigation by the Department of Justice. These developments are further fueled by the recent acquisition of Run:ai, an Israeli specialist in GPU orchestration software. In addition to specific market movements, macroeconomic developments are weighing on AI stocks. Lower growth figures from China are affecting the prices of copper and rare earth elements, which are essential components for AI devices. U.S. manufacturing data also show a decline in new orders and an increase in inventories in August, leading to an overall moderate contraction in manufacturing activities. Investment notes from JP Morgan and BlackRock have also made headlines by questioning the profitability of increasing AI investments. Apple Inc. is planning the imminent market launch of the next-generation iPhone, which is generating significant global attention. Wall Street analysts expect the new AI features of these devices to not be backward compatible, thereby triggering a significant upgrade cycle. Since about 50% of Apple's total revenue is generated by iPhones, investors are speculating on positive momentum from this launch. Delayed iPhone sales have slowed revenue growth in recent years, raising concerns about future earnings performance. Apple Inc. is trading at a forward P/E ratio of 32, indicating that much of the AI hype is already priced in. By comparison, Google is valued at a forward P/E of 21, while Meta is almost at 25. This discrepancy illustrates that Apple's stock is trading nearly 50% higher in P/E compared to Google and 40% higher than Meta. In summary, Apple Inc. occupies the second spot on our list of currently trending AI stocks. Although we recognize Apple’s potential as an investment, we see greater opportunities for higher short-term returns in some other AI stocks.