Artificial intelligence (AI) and tech-related stocks have been under pressure off late. On Tuesday, South Korean equities lost ground as investors dumped chip heavyweights amid growing concern that the rally had run its course.
Korea Exchange Kospi suspended trading for 20 minutes after market circuit breakers were triggered after a fall of 8 per cent. The index tanked another 10 per cent once trading resumed. Among stocks, SK Hynix Inc. lost over 11 per cent and Samsung Electronics Co. slipped 8 per cent.
Most experts have been warning regarding the AI-led euphoria in the stock markets, with Christopher Wood, global head of equity strategy at Jefferies even suggesting that the Space X IPO could mark the peak of AI euphoria.
The three mega IPOs of SpaceX, Anthropic and OpenAI, Wood said will suck liquidity out of other stocks, most particularly given the self-reinforcing dynamics of passive investing, Wood had cautioned in his weekly note to investors, GREED & fear. READ HERE
While AI as a concept is here to stay, said U R Bhat, co-founder & director, Alphaniti Fintech, it is the valuation of the related companies that’s worrisome.
“We have seen this in the case of Kospi on Tuesday and Space X earlier this week. Investors are not comfortable with the valuations these companies and the stocks command. That said, a fall in these stocks could see money flowing back into traditional information technology (IT) stocks as they were the ones that were beaten badly as the ‘AI theme’ emerged,” Bhat said.
The rise in AI-related stocks has been too fast, too soon. Investors are now starting to question the capex plans of companies and return on capital employed (ROCE), said Jyotivardhan Jaipuria, founder and managing director at Valentis Advisors.
“It is a double whammy. The stocks have gone up too fast and also made investors cautious on the capital spending of these AI-related companies. It is natural for investors to take some money off the table given the sharp run in most of the AI and new technology related companies. The stocks are taking a breather and the bull-run may not just be over yet,” he said.
