Tech stocks plunge as AI fears take hold

 Tech stocks have plunged as fears about the impact of artificial intelligence (AI) and concerns about demand for microchips grip Wall Street.

As much as $800bn (£586bn) was wiped off the Nasdaq Composite in New York on Tuesday, which was down almost 2.5pc at its worst point. The index recovered somewhat as trade went on but still closed down 1.5pc.

Traders mounted a firesale of software shares on mounting concerns that AI could cannibalise the work of traditional providers and professional services firms.

Chip stocks also plunged after a key supplier to ChatGPT-maker OpenAI warned of a slowdown in demand.

Investors are on edge

Some of the world’s biggest technology businesses suffered double-digit percentage falls. Palantir, the software giant co-founded by Peter Thiel, dropped more than 11pc despite reporting strong revenue growth in the fourth quarter.

AppLovin, which helps companies develop and publish their mobile apps, slumped 16pc, while Larry Ellison’s Oracle and cybersecurity group CrowdStrike also extended losses.

AMD, which has a major deal to supply chips to OpenAI, meanwhile crashed 17pc after it forecast a slowdown in revenues in the current quarter, disappointing lofty expectations.

Rival chip maker Micron Technology dropped 10pc, while Broadcom and ASML also racked up significant declines.

The rout deepened on Wednesday night as Arm and Qualcomm, two of the world’s biggest chip companies, saw shares plunge after quarterly results disappointed nervous investors.

Cambridge-based Arm fell by as much as 13pc, before clawing back their losses. Shares in Qualcomm, which makes smartphone chips based on Arm technology, initially slumped by 10pc after releasing gloomy forecasts.

Meanwhile, Google shrugged off the wider malaise. The internet giant, whose market value hit $4 trillion last month, revealed a 30pc increase in quarterly profits to $26.5bn. 

Investors have been on edge since the start of the week after Anthropic, the AI company behind the Claude chatbot, unveiled a new service that allows users to automate tasks in sectors ranging from finance and law to marketing and data analysis.

It has sparked fears that existing programmes and business models could become redundant and triggered what Nay Soe Naing, a technology analyst at Berenberg, called an “on-going ‘let’s get out of software as much as we can’ trade’”.

He said: “I personally think it is far too early to conclude, with any conviction, whether AI will ultimately be a friend or a foe to software companies. But the market, of course, has already made up their mind that it’ll be the latter.”

In the UK, online estate agency Rightmove was one of the biggest fallers on the FTSE 100, while data giant Relx, publisher Pearson, software group Sage and the London Stock Exchange Group all extended recent share price falls.

Advertising giant WPP, which owns groups including Ogilvy and Grey, tumbled to its lowest level since 1998 amid growing concerns that AI could be used to sidestep agencies.

‘Internally inconsistent’

Despite the sell-off, the FTSE 100 rose to a fresh record high on Wednesday, driven by gains for gambling group Entain and Beazley, the insurance group that agreed an £8bn takeover by Zurich.

While much of the market slump was driven by fears of AI making software redundant, in a somewhat contradictory signal the slump for chipmakers suggested some traders were worried demand for AI was slowing.

Analysts at Bank of America described the market volatility as “internally inconsistent”.

The slump highlights growing nervousness among investors about the sustainability of the AI boom, which has powered US stock markets to repeated record highs over the last year.

Niall Gallagher, an investment manager at Jupiter Asset Management, told The Telegraph: “We really don’t know for certain how far the disruption will go, given how fast the technology is moving, and we need to be humble about what we can’t predict.

“But that being said, I’ve lived through numerous ‘hype cycles’ before – including the [dotcom] bubble – and whilst technology does change the world, it doesn’t happen overnight.”

Jensen Huang, chief executive of Nvidia, branded the sell-off in software companies “the most illogical thing in the world”, insisting AI will use software products, not replace them.

Speaking at an event on Tuesday night, he said: “There’s this notion that the tool is in decline and being replaced by AI. Would you use a screwdriver or invent a new screwdriver?”