Underperforming results have become the fuse for the high expectations backlash of US tech stocks.
The US stock market plummeted on Wednesday, with large-cap tech stocks bleeding heavily. At the close on Wednesday, the Dow fell by 1.25%, while the tech-heavy Nasdaq plunged by over 3.64%, marking the largest single-day drop since December 2022.
The &#34;Seven Sisters&#34; of tech stocks all suffered defeats, with Tesla (TSLA.US) plummeting by 12.33%, NVIDIA (NVDA.US) dropping by 6.8%, and Google-C (GOOG.US) falling by over 5%. Overnight, the combined market value of the &#34;Seven Sisters&#34; evaporated by over $760 billion!
Are market expectations too high for tech stocks?
Amid the AI frenzy, the &#34;Seven Sisters&#34; of tech stocks have significantly increased their fundraising capabilities in the capital markets, contributing to the Nasdaq's brilliant performance this year.
One major reason for this deep adjustment in the US stock market is that the underperforming results of individual tech stocks have shattered the market's fantasies.
Financial reports show that Tesla's deliveries in the second quarter of this year dropped by 4.76% year-on-year, performing below expectations. The revenue from car sales decreased by 9.25% annually, a larger decline than the delivery volume. Additionally, the launch of Tesla's autonomous taxi service will be delayed until October 10, intensifying market concerns.
Furthermore, in the second quarter, Google's YouTube ad revenue was $8.66 billion, significantly below expectations, leading investors to worry about whether Google's massive investment in AI will truly bring returns.
The widespread tech stock plunge caught investors off guard, igniting market panic. In the coming weeks, major tech companies such as Apple, Microsoft, Amazon, and Meta will continue to announce their performance. Whether their report cards can ease investor panic will likely impact the direction of the US stock market.
Recent reports from consulting firms Dealroom and Flow Partners show that the &#34;Seven Sisters&#34; of US stocks invest as much as $400 billion annually in AI and cloud infrastructure, covering areas from AI chips, large models, to humanoid robots, autonomous driving, AI healthcare, and more. Additionally, according to FactSet's statistics, in the first quarter of this year, the total capital expenditures of Amazon, Google, Microsoft, and Meta reached a new high of $44 billion.
The tech giants' ambitious investments aim to seize the initiative in this AI cycle. The capital market is also full of expectations, pushing the growth prospects of tech stocks to new heights.
However, overly high market expectations can easily be shattered by reality. Prior to the recent pullback in US tech stocks, many international investment banks such as Goldman Sachs and Citigroup had warned that the risks in the US stock market were increasing. Societe Generale of France even wrote, &#34;The valuation of IT stocks is a time bomb.&#34; Additionally, according to Goldman Sachs, companies throwing billions of dollars in the AI field will not trigger the next economic revolution, and may not even match the benefits of smartphones and the internet
Feeling Cold at the Top?
After OpenAI launched ChatGPT in November 2022, the capital market seemed to have discovered a gold mine. AI companies represented by NVIDIA, Microsoft, and other large tech stocks have seen their stock prices continue to rise, further raising market expectations and valuations.
At a critical moment when these tech giants are facing a slowdown in profit growth, the high valuations undoubtedly increase the risk of profitability. Some analysts point out that these companies generally have excessively high P/E ratios, and once they are hit by external shocks or black swan events, they will suffer significant impacts.
Goldman Sachs stated that large-scale enterprises will eventually be required to prove that their investments will generate income and profits. Failure to meet this expectation will result in a significant drop in valuation and stock prices.
The valuations of the three major U.S. stock indexes are also soaring. According to Wind data, over the past decade, the S&amp;P 500 Index, the Nasdaq Index, and the Dow Jones Industrial Average had average P/E ratios (TTM) of 23.83 times, 37.39 times, and 21.82 times respectively. However, they have now reached 26.8 times, 42.2 times, and 28.6 times respectively.
Goldman Sachs' tactical strategist Scott Rubner warned that the S&amp;P 500 Index has no choice but to fall next. The adjustment of the U.S. stock market has just begun, so it is not advisable to buy on dips.
In fact, starting from last week, the upward momentum of U.S. tech giants has disappeared, and more and more people in the market are choosing to take profits, including many institutions cashing out large amounts. Some institutions had already &#34;taken the money and run&#34; earlier.
According to Wind data, in terms of institutional holdings in the second quarter of this year, many tech stocks, including the &#34;Seven Sisters&#34; of tech stocks, have been reduced by institutions, and the number of institutions has also declined. Among them, the number of institutions holding NVIDIA shares decreased from 2684 to 1191, with institutional holdings decreasing by 733 million shares.
Jim Covello, the analyst at Goldman Sachs responsible for the technology industry, pointed out in a report, &#34;Although the cost and investment are high, AI technology is still far from being truly useful at the moment. Overbuilding something that the world is not ready for usually ends badly.&#34;

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US tech stocks plunged significantly due to lower-than-expected performance, with tech giants such as Tesla, NVIDIA, and Alphabet experiencing sharp declines in stock prices, causing a total market value evaporation of over $760 billion for seven companies. The market's high expectations for tech stocks led to this adjustment, as individual tech companies' performance falling below expectations shattered market fantasies. In the coming weeks, Apple, Microsoft, Amazon, and Meta will announce their performance, which will have an impact on the US stock market. The high investments by tech giants in artificial intelligence and cloud infrastructure demonstrate their advantage in seizing opportunities in this AI cycle

- The unexpected underperformance in tech stocks triggered a significant drop in the US stock market on Wednesday, with the Nasdaq plummeting over 3.64%, marking the largest single-day decline since December 2022. Major tech giants like Tesla, Nvidia, and Google faced substantial losses, with Tesla plunging 12.33%, Nvidia down by 6.8%, and Google by over 5%.
- Disappointing earnings reports from Tesla and Google, coupled with concerns over delayed projects, intensified market worries. The tech sector's widespread decline sparked investor panic, highlighting the fragility of high market expectations. As major tech companies like Apple, Microsoft, Amazon, and Meta prepare to announce their earnings in the coming weeks, their performance will likely influence market trends.
- Despite massive investments in AI and cloud infrastructure by tech giants, concerns over inflated valuations and profit risks persist. The market's heightened expectations face reality checks as warnings of overvaluation and profit uncertainties loom, potentially impacting stock prices and market stability.

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High expectations lead to trouble? The "Seven Sisters" of the US stock market evaporated over $760 billion overnight!