The tech sector has been underperforming in the stock market lately. In some cases, lingering problems are the cause, but recent evolutions—artificial intelligence—are also in dire straits. This shows how investors push companies to have a rapid innovation process while holding tech companies accountable for their promises.
The tech stock market is on a bumpy train that is slowly descending. The trend has been drawing in since July, hitting some tech companies harder than others. The hardest hit is in the chip industry. Only Apple escapes, but that company, despite developing its own chips, does not have the strongest association with the chip sector.
The question is what pushed the tech sector into this bumpy train. Reports on the tech exchange were consistently positive until July 10. The stock price peaked, and since then, the companies just can’t seem to escape the descent.
Intel: relied on past success for too long
Intel’s stock market value, which took a 26 percent plunge last week, is a good example of how the tech stock market has fared in recent months. It is an obvious, but frankly extreme example. Intel shares, in fact, experienced the heaviest decline in the past 40 years. The downtrend is currently common on the tech stock market, although most companies are not suffering this much.
Before the stock market drop, the company announced a major round of layoffs and hefty cutbacks, accompanied by the deferral of dividends to shareholders. The company was thus trying to compensate for the presentation of weaker quarterly figures, but that approach proved little success.
Intel’s cost-cutting plan may come too late in the eyes of investors, as the problem the company is trying to solve has been blossoming and growing for years. The pace of innovation is too slow and new developments tend to be too bland compared to competitors. The chip maker’s top position has been faltering for years: Apple increasingly launched products based on its own chips rather than Intel’s, and Microsoft did not put Intel chips to work in its new Surface devices. They picked Qualcomm, as Intel’s and AMD’s development processes took longer and did not yet deliver.
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Failures and delays
Nvidia shares underwent a very different parkour in recent months and were a guaranteed success for investors. During a brief period, it was even the most valuable company in the world. It took that baton from Microsoft, which usually competes with Apple’s stock market value. But time is changing: the upcoming delay of the Blackwell B200 GPU may push its stock market value down further. That would mean a further decline from the 22 percent already lost (since the beginning of July).
The prediction is bolstered by a comparison with the trajectory Intel has already gone through. There, technical problems in some runs of Intel’s Gen Core processors and production of 10nm chips pushed down the stock market numbers. Intel suffered reputational damage, which also seems inevitable for Nvidia, given that the error was an “unusually late” discovery during the manufacturing process. The order forms for the GPUs are already in at this stage, and Nvidia has to notify Microsoft and other cloud providers of delays.
Investors are fairly allergic to the word “delays’. They want to get value back for their investment and, therefore, put a lot of pressure on rapid innovation. This expectation does run into limits within the tech industry. To keep investors happy anyway, companies push through smaller updates on a regular basis that could just as easily have been packed into one larger update that would blow users away. Moreover, the pressure sometimes causes new products to be introduced with bugs or security risks because the testing phase is counted too tightly. Tech companies usually deny these allegations, of course.
Also read: Nvidia likely to delay server chip B200 after design flaw
AI fails to deliver
Another cause is mainly relevant to report because of the fact that it affects a wider field. That said, neither cause is immune to the other. In fact, companies operating in the chip sector and investing in AI chips by necessity seem to suffer the most. Since the beginning of July, AMD and Nvidia declined more than 20 percent.
Nvidia has benefited the most from AI technology. Since data centers first invested in infrastructure for AI, Nvidia’s GPUs have been the only option. Nvidia offers both a full suite of AI software and the hardware needed, which can continuously scale up to train and develop GenAI. There is no change in that monopoly for now. As the AI evolution shows the first cracks, because it cannot deliver on the promises made beforehand, investors are slowly losing confidence. Nvidia, because of its dominant position in AI chips, may be firmly affected by that.
Apple, whose shares are also always a top choice on the tech exchange, held up reasonably well. Over the past period, the stock fell less than four percent. Investors, however, do not appear to be entirely comfortable with these leaders either. American investor Warren Buffett, who wields great influence over the stock markets, recently sold half of his Apple shares. According to the Financial Times, 390 million shares were reportedly disposed of. The company has let the first wave of AI pass by and will not introduce AI features in iOS 18 until later this year.
No self-contained problem
Stock markets in general are losing. The Japanese stock market recently experienced the biggest stock market crash in 37 years. That stress is spilling over to other stock markets. In addition, the U.S. stock market is not completely comfortable either. There, reports of a slowdown in the economy are taking the upper hand and that could trigger an economic recession.
As a result, investors are currently following stock market developments extremely closely. The tension ensures that any sign of a possible problem results in a bigger reaction than normal.
Also read: Intel and Nvidia have radically different visions for AI development