Nvidia and Microsoft Logos
Global mega tech companies experienced a sharp decline in market capitalization in July due to disappointing quarterly results and concerns over high valuations. This prompted investors to shift their focus away from the AI sector.
Disappointing Earnings Reports Impact Market Valuations
In the first half of 2024, investors pushed tech stocks higher on expectations that AI advancements would boost earnings. However, the second-quarter earnings reports from tech companies have raised concerns about the investment in AI infrastructure leading to ballooning costs with only modest gains.
Microsoft (MSFT) reported revenue that fell short of analysts' expectations, while Tesla reported its lowest profit margin in more than five years. Additionally, Alphabet, the parent company of Google, experienced a slowdown in advertising sales at YouTube, raising concerns about Alphabet's ability to expand its margins.
Market Capitalization Declines Across Major Tech Firms
Microsoft and Alphabet's market capitalizations fell by about 6% to $3.1 trillion and $2.1 trillion, respectively, at the end of July, based on LSEG data.
Slowing profits among major customers dampened growth expectations for chipmaker Nvidia, leading to a 5.2% reduction in its market cap to $2.8 trillion. This downturn also impacted its Taiwanese production partner TSMC, the world's largest third-party microchip foundry, which experienced a 4.3% decrease in market cap to $737.8 billion at the end of July.
Apple Bucks the Trend with AI Optimism
Bucking the trend, Apple's market cap surged 5.4% to $3.4 trillion at the end of July, fueled by optimism that its new AI initiative, Apple Intelligence, would boost sales and encourage customers to upgrade their devices to utilize the new technology.
Despite weak results, Tesla's market cap increased by 17.2% to $740.1 billion, buoyed by optimism about its future growth prospects. Morgan Stanley named Tesla the most valuable automaker its "top pick" in the U.S. automotive industry, replacing Ford, and predicted that Tesla's energy business could eventually surpass its auto business in value.
Broader Market Implications
Outside the tech sector, drug maker Eli Lilly's market capitalization fell 11.2% to $764.3 billion, amid concerns about its lead in the anti-obesity market being challenged by a promising experimental pill from rival Roche.
Meanwhile, Nvidia added about $330 billion in stock market value on Wednesday, a record one-day gain for any company on Wall Street after Microsoft and Advanced Micro Devices reignited the AI rally.
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