Big Tech Earnings Sell-Off Highlights Market Risks
Monday's market downturn highlights the crucial role of Big Tech earnings in driving the bull market and investor expectations.
Chinese AI firm DeepSeek's advancements sparked concerns about increased competition for Nvidia and other tech giants, prompting a sell-off. Nvidia plummeted over 16%, while Microsoft, Alphabet, and Tesla also declined significantly. Broadcom, a major AI player, faced an over 17% drop.
Strategists have warned of the risk of slowing Big Tech earnings growth for over a year, given the high index valuations and heavy concentration in tech stocks. Keith Lerner of Truist notes the sudden uncertainty in the AI market led to a sell-first approach.
Unlike other risks, the potential for a collapse in Big Tech earnings has not been widely discussed. DeepSeek's AI model has provided a tangible reason for investors to question future earnings expectations.
Despite expectations of a slowdown in earnings growth in 2025, Big Tech remains a key pillar of the bull market thesis. The "Magnificent Seven" (Microsoft, Alphabet, Apple, Amazon, Meta, Nvidia, Tesla) is projected to grow earnings by 21.7% in Q4 of 2024. While this growth is expected to decelerate in Q1, it is forecast to accelerate to over 24% in Q3.
According to Lerner, Monday's sell-off emphasized fundamental factors influencing the market. He believes tech will continue to drive overall market returns in 2025.