Big Tech Earnings Slowdown Triggers Market Sell-Off
Monday's market sell-off highlights the market's dependence on Big Tech earnings growth. Innovation from Chinese AI firm DeepSeek has raised concerns about competition for Nvidia and other tech giants, sparking a pause in US AI investments.
Nvidia's stock plummeted by over 16%, while Microsoft, Alphabet, and Tesla, all "Magnificent Seven" members, lost over 2%. Broadcom, another major AI player, dropped by 17%.
Analysts have long warned of the risk of a slowdown in Big Tech's earnings growth. With index valuations at multi-decade highs and tech giants dominating the S&P 500, the market's rally has been built on a narrow foundation.
Unlike other risks, such as interest rates or inflation, the collapse of Big Tech earnings growth has remained an elusive possibility. However, DeepSeek's AI model has provided a tangible reason for investors to question earnings expectations.
Despite the sell-off, Big Tech earnings growth remains a key pillar of the bull market thesis. The "Magnificent Seven" is expected to increase earnings by 21.7% in Q4, significantly outpacing the broader tech sector. Year-over-year growth is projected to slow in Q1 but accelerate again in Q3.
Keith Lerner, Truist co-chief investment officer, notes that while geopolitical factors matter, tech remains the primary driver of market returns in 2025.