+34Wall Street swung between fears of an AI development slowdown and excitement over Meta's Muse assistant, sending hundreds of billions of dollars out of and back into AI-exposed stocks in two weeks.
Wall Street has swung between two extremes over the past two weeks, sending hundreds of billions of dollars out of and then back into AI-exposed stocks.
The shifts have frayed the nerves of investors scrambling to keep up. This has been a narrative market and the narrative changes every other week, said Nancy Tengler, chief executive at Laffer Tengler Investments. It started on September 12, when Anthropic chief executive Dario Amodei called for a slowdown in development of cutting-edge AI models. OpenAI chief executive Sam Altman and SpaceX chief executive Elon Musk quickly backed the call.
AI Safety Warnings Shake Market
The moves seemed to validate a series of recent warnings from within the industry about existential risks posed by the technology. The response in the sharemarket was swift. On the first trading day after Amodei's essay was published, AI infrastructure stocks tumbled. Investors worried that hitting the brakes on development would mean less spending on computing equipment.
The tech-heavy Nasdaq 100 Index dropped 1.5 per cent between September 14 and 15, erasing more than $US600 billion ($850 billion) in market value. But those fears vanished last week as excitement about the popularity of Meta Platforms' Muse personal assistant sent traders rushing back into AI-exposed stocks. Meta shares jumped 11 per cent on Monday last week.
That put the Facebook and Instagram parent on pace for its best month in more than a decade, after struggling for much of the year amid concerns that heavy spending on AI would not pay off. Intel and Advanced Micro Devices each rallied more than 9 per cent. The Philadelphia Stock Exchange Semiconductor Index, known by its ticker SOX, gained 6 per cent on Monday and Tuesday last week.
Meta Muse Boosts Nasdaq Records
That helped push the Nasdaq 100 to its first record since early June. The Muse excitement also triggered sell-offs in shares of companies that rely on recurring bills and negotiable pricing. AI agents are expected to improve at tasks such as price comparison, trip bookings and customer service interactions. Insurer Allstate fell 8.9 per cent for the week, while cable-provider Charter Communications sank 12 per cent and Planet Fitness 14 per cent.
Still, by the end of the week, $US3 trillion had been added to the Nasdaq 100 since the September 15 low. The moves are staggering in both directions, said Rhys Williams, chief strategist at Wayve Capital Management. It is hard to explain from a fundamental point of view. Rapid changes in sentiment are nothing new in this market, which has been propelled higher by AI for nearly four years.
In early 2025, fears about a pullback in spending sparked by a DeepSeek AI model developed cheaply in China caused semiconductor stocks to plunge. Nvidia, which dominates the market for AI chips, dropped 17 per cent in a single day. While those fears proved misplaced, AI has only got more important for the market and the economy, with spending from tech giants and AI start-ups ballooning. That is giving investors itchy trigger fingers, especially when it comes to AI disruption.
The Muse-driven sell-off had echoes of earlier this year when releases of AI tools from Anthropic sent shares in a broad range of industries tumbling, from software-as-a-service companies to asset managers. But when it comes to AI spending, investors are grappling with other risks in addition to safety. Interest rates are soaring, making the cost of AI development more expensive. And there is a rising backlash against data centres.
Semiconductor Stocks Face Volatility
Fears about that flow of money slowing down have been most apparent in semiconductor stocks. After doubling from the start of the year through June 22, the SOX tumbled 29 per cent to a July 29 low. While the index has staged a rebound, it remains down 13 per cent from the June peak.
The sell-off has knocked a lot of the froth out of stock prices, leaving many companies poised for more gains, according to JoAnne Feeney, a portfolio manager at Advisors Capital Management. You do not have to believe that this pace of growth is going to continue for five years in order to own companies like Nvidia or Broadcom and some of the others because their valuations have really come in, said Feeney, whose firm holds shares of both companies.
We may very well be positioned for renewed interest in the key contributors to the AI infrastructure build-out. Nvidia shares recently hit their cheapest valuation in more than a decade. At less than 17 times profit expected over the next 12 months, the stock's multiple is half what it commanded in 2025, according to data compiled by Bloomberg. Other investors are taking a more cautious approach.
Daniel Pilling, a portfolio manager at Sands Capital, still sees plenty of risk in the AI trade, particularly because no one knows what is in store for the technology. We manage it with a lot of humility in terms of what we can do and what we know, said Pilling.
Market Scepticism Signals Health
But net-net I would actually still say that maybe there is a sense of AI concern, I suppose, rather than sort of that bullishness that we had in May and June. Such scepticism is plentiful and a sign that the market remains healthy, according to Tengler. What you do not want is euphoria, which is what we had at the end of the '90s, she said, referring to the dotcom bubble.
Investors will get the latest read on the outlook for AI spending this week when memory chip maker Micron Technology reports earnings on Wednesday after US markets close, early Thursday AEST. One thing everyone seems to agree on is that rapid sentiment swings are not going away any time soon.
It is easy to focus on the destruction argument, and it is equally easy to focus on the potential creation argument, said Bill Mann, chief investment strategist and portfolio manager at Motley Fool Asset Management, which has about $US2.7 billion in assets.
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smh:This story was compiled and edited by the HeadTopics newsroom and HT AI from the reports above.
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