In the 2003 hit movie Freaky Friday, a mother and daughter played by Jamie Lee Curtis and Lindsay Lohan wake up one morning and find their lives have been switched.
This week, Big Tech stocks are facing a similar freaky moment: Previously underperforming stocks are gaining momentum while dominant technology stocks, dubbed the Magnificent Seven because of their gravity-defying performance over recent years, are now faltering.
- Tesla’s profits came in much lower than analysts expected, and Alphabet, the parent company of Google and YouTube, beat analyst expectations but only by 0.6%.
- The Nasdaq and S&P 500, two major indexes, each had their worst day since 2022, losing 3.6% and 2.3%, respectively, with nearly US$800 billion of market value wiped out.
Why it matters: The overweight impact of technology stocks has left major markets vulnerable to small, even unclear shifts in investor sentiment. Between January and June, Nvidia, Microsoft, Alphabet, Amazon, and Meta drove 63.2% of the gains on the S&P 500.
- Investors are starting to diversify away from big bets on AI — the small-cap Russell 2000 Index outperformed the S&P 500 by a historic margin over the past two weeks.
What’s next: Big Tech CEOs will tell you they’re spending a lot now (much of it on AI) to secure their success in the future, but it’s unclear when more revenue will materialize.—SB