There is no one reason for the tech route lately. But there are several causes as I see it:
1) Stocks priced for perfection. This applies mostly to Google that was priced to beat estimates. They did not and alot of people took that to mean Google was incorrectly priced and should have a multiple shift down.
2) worry about capital expenditures. Google was also guilty here as the market is starting to get worried about these companies getting over their skiis on cap ex. Microsoft did guide their capex lower but Google doubled down and said they'd spend even more. The market punished them for that.
to this point MSFT is only slightly down due more to the sector than the company as they did announce capex cuts for next year.
3) Intel just flat out failed to hit targets on their earnings that the market felt it should have been easy to do in this economy. And they got punished for it.
4) Most hedge funds and other large money managers have had decent allocations to the Mag7 and related companies as if you didn't have any tech exposure you would almost certainly outperform in the past 2-3 years.
This year we're starting to see a slow down or resetting of expectations for tech companies, Anthropic and Open AI seeing their IPO valuations get cut down is one large sign of this.
We've seen a large transition of hedge funds out of tech in the past 6 months that really accelerated with this earnings season.
5) Earnings capture. We're nearing the end of the year and alot of long/short funds are just starting to realize gains to lock them in for the year. Tech has had a good run and if you think that its going to get worse into the end of the year, you realize your gains here, or you get the sell side to write you a bespoke option at the price you want to realize your gains at if you don't want to realize it for tax purposes and then they go and sell the stock to hedge, which has the same effect of pushing down the stock as it would as if you just sold
None of this is to say that AI or the tech sector is going away. its more of a changing allocation of money out of this sector due to their valuations getting ahead of their economics.
1) Stocks priced for perfection. This applies mostly to Google that was priced to beat estimates. They did not and alot of people took that to mean Google was incorrectly priced and should have a multiple shift down.
2) worry about capital expenditures. Google was also guilty here as the market is starting to get worried about these companies getting over their skiis on cap ex. Microsoft did guide their capex lower but Google doubled down and said they'd spend even more. The market punished them for that.
to this point MSFT is only slightly down due more to the sector than the company as they did announce capex cuts for next year.
3) Intel just flat out failed to hit targets on their earnings that the market felt it should have been easy to do in this economy. And they got punished for it.
4) Most hedge funds and other large money managers have had decent allocations to the Mag7 and related companies as if you didn't have any tech exposure you would almost certainly outperform in the past 2-3 years.
This year we're starting to see a slow down or resetting of expectations for tech companies, Anthropic and Open AI seeing their IPO valuations get cut down is one large sign of this.
We've seen a large transition of hedge funds out of tech in the past 6 months that really accelerated with this earnings season.
5) Earnings capture. We're nearing the end of the year and alot of long/short funds are just starting to realize gains to lock them in for the year. Tech has had a good run and if you think that its going to get worse into the end of the year, you realize your gains here, or you get the sell side to write you a bespoke option at the price you want to realize your gains at if you don't want to realize it for tax purposes and then they go and sell the stock to hedge, which has the same effect of pushing down the stock as it would as if you just sold None of this is to say that AI or the tech sector is going away. its more of a changing allocation of money out of this sector due to their valuations getting ahead of their economics.