Technology stock investors are known for their impatience. Recently, however, their eagerness has turned into disappointment as significant investments poured into the artificial intelligence (AI) race have yet to yield the expected profit growth.

The Nasdaq Composite, an index representing hundreds of technology companies on the US stock market, fell 1,2% during the 26/6 trading session. The index has declined throughout this week's trading sessions and is currently 6% lower than its historical peak set on 2/6.

Microsoft and Meta have entered a bear market, losing about 20% of their value from their peaks. The remaining members of the "Magnificent 7" group, including Amazon, Apple, Google, Nvidia, and Tesla, have also entered correction territory, dropping at least 10% from their recent highs.

Nasdaq index fluctuations over one year. Chart: Google Finance.

This divergence is evident in the performance of Apple and Micron. On 25/6, Apple announced it would increase prices for MacBooks and iPads due to memory chip scarcity, causing its stock to fall over 6%. Conversely, Micron, a manufacturer of memory and storage chips, surged nearly 16% in the same session after reporting earnings that exceeded expectations, driven by strong semiconductor demand.

These developments are prompting greater caution across the industry. OpenAI is considering postponing its initial public offering (IPO) plans, as recent market volatility could make it difficult for the company to achieve its target valuation of 1,000 billion USD.

Not only in the US, but the Kospi, South Korea's benchmark index, has also experienced a similar downturn. The market activated a circuit breaker during the 26/6 trading session, halting trading for 20 minutes. The Kospi closed down a total of 5,8%.

The Kospi plummeted following the decline in shares of two technology giants, SK Hynix and Samsung. These two companies currently account for about half of South Korea's stock market capitalization.

Kospi index fluctuations since the beginning of the year. Chart: Google Finance.

Investor caution is justified. For many years, AI stock valuations have been consistently driven higher, primarily based on expectations of the technology's potential rather than actual profit growth, which is typically the main driver of stock prices.

Global demand for AI is still increasing, but the industry's growth rate compels businesses to spend and borrow tens of billions of USD to build infrastructure and develop technology. However, financial results cannot improve immediately.

Traders at the US stock market. Photo: Reuters.

Furthermore, companies' aggressive investment in AI has triggered a wave of data center construction. This has led to immense demand for high-performance chips, which semiconductor manufacturers have not been able to produce fast enough to meet.

Scarce supply has caused chip prices to soar, creating a clear divergence within the AI industry. Chip manufacturers have become major beneficiaries, with their stocks consistently breaking out. Meanwhile, technology corporations that invest heavily in developing and operating AI models face downward price pressure due to increased costs and profits not meeting expectations.

Beyond the scarce chip supply, rising bond yields and the likelihood of the US Federal Reserve (Fed) continuing to raise interest rates in the coming months could add further pressure on the technology sector. This group is typically sensitive to high borrowing costs.

Trong Hieu (according to CNN)