Big Tech Earnings Growth Concerns Spark Market Rout
Monday's market sell-off highlights the crucial role of Big Tech earnings in driving the bull market and investors' expectations for 2025.
AI Competition Concerns: Developments from Chinese AI company DeepSeek ignited concerns about intensifying competition in the AI space for Nvidia and other Big Tech giants, leading to a pause in US AI trading.
"Magnificent Seven" Declines: Nvidia stock plummeted over 16%, while other "Magnificent Seven" members Microsoft, Alphabet, and Tesla shed 2% or more. Broadcom, another major AI player, fell 17%.
Thin Ice: Strategists have warned for over a year of the risks posed by a slowdown in Big Tech's rapid earnings growth. With valuations near multi-decade highs and the largest 10 stocks accounting for 40% of the S&P 500, the market is increasingly vulnerable to a sell-off.
Tangible Threat: DeepSeek's new AI model has given investors concrete reason to question whether high earnings expectations for Big Tech will materialize.
MGN Growth Outperformance: In 2024, the "Magnificent Seven" outperformed the S&P 500 by 30 percentage points, relying heavily on their earnings growth. While that margin is projected to narrow, Big Tech earnings remain a key driver of market gains.
Returning to Fundamentals: Monday's sell-off has brought investors back to focusing on fundamentals, emphasizing the significance of technology in overall market performance in 2025.