The wheels appeared to be coming off the artificial-intelligence trade on Wednesday, as members of the “Magnificent Seven” group of megacap tech stocks booked their worst daily drop since the launch of ChatGPT.
OpenAI’s November 2022 rollout of its AI chatbot ushered in an era of investor optimism around the technology’s potential to drive innovative new products and offerings — and, in turn, fuel lucrative corporate earnings for the biggest and best-positioned tech companies.
Yet Wednesday’s stock-market selloff saw the Magnificent Seven finish down 4.6% — their one-day worst drop since September of that year, according to a market-cap-weighted gauge maintained by Dow Jones Market Data.
Since their most recent peak on July 10, the seven stocks have fallen more than 10% through Wednesday’s close, leaving them firmly in correction territory for the first time since this past October.
Megacap tech stocks have hit the skids in July since a softer-than-expected inflation report rekindled expectations for multiple Federal Reserve interest-rate cuts between now and the end of 2024, with the first expected to arrive in September.
But it was the results from the Magnificent Seven names that appeared to garner most of the attention from investors, as they missed what had been described as a “high bar” set by Wall Street.
But perhaps the most damaging details from the two earnings reports were signs that Alphabet’s aggressive investment in AI might take longer than hoped to pay off. The company’s shares lost more than 5% Wednesday.
”There were signs that it’s going to take longer for them to see a payoff from their investment in AI,” said Kim Caughey Forrest, founder and chief investment officer at Bokeh Capital Partners, during a Wednesday call with MarketWatch. “To me, that is key.”
Investors appear to have been blindsided by the selloff in the Magnificent Seven stocks over the past two weeks — but there were signs nonetheless.
According to data from BondCliQ, investors have been dumping corporate bonds issued by Magnificent Seven members for the past two weeks, although the sales haven’t had much of an impact on yields. Bond yields move inversely to prices.
