Big Tech Earnings Downturn Triggers Market Sell-Off
Monday's sharp market sell-off underscores the ongoing dominance of Big Tech earnings as a market driver. The rout was sparked by concerns over increased competition in the AI sector, stemming from advancements by Chinese company DeepSeek.
Nvidia (NVDA), a major AI player, plummeted over 16%. Other "Magnificent Seven" members, including Microsoft (MSFT), Alphabet (GOOG, GOOGL), and Tesla (TSLA), lost 2% or more. Broadcom (AVGO), another industry heavyweight, declined by 17%.
Analysts have long warned about the risk of decelerating growth in Big Tech earnings. With index valuations reaching multi-decade highs and the ten largest stocks representing nearly 40% of the S&P 500, the market's reliance on this sector has become precarious.
The lack of a clear catalyst for an earnings collapse had previously confounded investors. However, DeepSeek's AI model has emerged as a tangible reason to question the sustainability of current earnings expectations.
Despite the recent sell-off, Big Tech earnings growth remains a key pillar of the bull market thesis. The "Magnificent Seven" are expected to experience a 21.7% earnings increase in the fourth quarter, significantly outpacing the 9.7% growth projected for other tech stocks.
Long-term prospects for Big Tech appear promising, with year-over-year earnings growth for the "Magnificent Seven" anticipated to accelerate to over 24% in the third quarter.
According to Keith Lerner, co-chief investment officer at Truist, the sell-off serves as a reminder of the importance of fundamentals, despite geopolitical uncertainties. "Tech is at the forefront of the overall return for the market this year," Lerner said.