An estimated half a trillion dollars was wiped out from the financial markets this week, as some of the biggest tech companies, including Nvidia, Microsoft, and Palantir Technologies saw a temporary but sizeable drop in their share prices on Tuesday. It may have been just a short-lived correction, but experts warn of mounting signs of a financial market crash, which could cost several times this amount.<\/p>\n
With dependence on tech and AI growing, critics argue that betting on these profits is a gamble, stressing that the future remains uncertain.<\/p>\n
Singapore\u2019s central bank joined a global chorus of warnings from the IMF, Fed Chair Jerome Powell, and Andrew Bailey about overvalued stocks.<\/p>\n
The Monetary Authority of Singapore said on Wednesday that such a trend is fuelled by \u201coptimism in AI\u2019s ability to generate sufficient future returns\u201d, which could trigger sharp corrections in the broader stock market.<\/p>\n
Goldman Sachs and Morgan Stanley predict a 10\u201320% decline in equities over the next one to two years, their CEOs told the Global Financial Leaders\u2019 Investment Summit in Hong Kong, CNBC reported.<\/p>\n
Experts interviewed by Euronews Business also agree that a sizeable correction could be on the way. <\/p>\n
In a worst-case scenario, a market crash could wipe out trillions of dollars from the financial markets. <\/p>\n
According to Mathieu Savary, chief European strategist at BCA Research, Big Tech companies, including Nvidia and Alphabet, would cause a $4.4 trillion (\u20ac3.8tn) market wipeout if they were to lose just 20% of their stock value.<\/p>\n
\u201cIf they go down 50%, you’re talking about an $11tr (\u20ac9.6tr) haircut,\u201d he said.<\/p>\n
AI rally: Bubble or boom?<\/p>\n
The US stock market has defied expectations this year. The S&P 500 is up nearly 20% over the past 12 months, despite geopolitical tensions and global trade uncertainty driven by Washington\u2019s tariff policies. Gains have been strongest in tech, buoyed by optimism over future AI profits.<\/p>\n
While Big Tech continues to deliver, with multibillion-dollar AI investments and massive infrastructure buildouts now routine, concerns are growing over a slowing US economy, compounded by limited data during the government shutdown. Once fresh figures emerge, they could rattle investors.<\/p>\n
AI enthusiasm is most evident in Nvidia\u2019s extraordinary stock gains and soaring valuation. The company is central to the tech revolution as its graphics processing units (GPUs) are essential for AI computing.<\/p>\n
Nvidia\u2019s shares have surged over 3,000% since early 2020, recently making it the world\u2019s most valuable public company. Between July and October alone, it gained $1tr (\u20ac870bn) in market capitalisation \u2014 roughly equal to Switzerland\u2019s annual GDP. Its stock trades at around 45 times projected earnings for the current fiscal year.<\/p>\n
Derren Nathan, head of equity research at Hargreaves Lansdown, said: \u201cMuch of this growth is backed by real financial progress, and despite the massive nominal increase in value, relative valuations don\u2019t look overstretched.\u201d<\/p>\n
Analysts debate whether the current market mirrors the dot-com bubble of 2000. Nathan notes that many tech companies that failed back then never reached profitability, unlike today\u2019s giants, which generate strong revenues and profits, with robust demand for their products.<\/p>\n
Ben Barringer, global head of technology research at Quilter Cheviot, added: \u201cWith governments investing heavily in AI infrastructure and rate cuts likely on the horizon, the sector has solid foundations. It is an expensive market, but not necessarily a screaming bubble. Momentum is hard to sustain, and not every company will thrive.\u201d<\/p>\n
BCA Research sees a bubble forming, though not set to burst immediately. Chief European strategist Mathieu Savary said such bubbles historically peak when firms begin relying on external financing for large projects.<\/p>\n
Investments in assets for future growth, or capital expenditures, as a share of operating cash flow, have jumped from 35% to 70% for hyperscalers, according to Savary. Hyperscalers are tech firms such as Microsoft, Google, and Meta that run massive cloud computing networks.<\/p>\n
\u201cThe share of operating earnings is likely to move above 100% before we hit the peak,\u201d Savary added. This means that they may soon be investing more than they earn from operations.<\/p>\n
Recent examples of Big Tech firms turning to external financing for such moves include Meta\u2019s Hyperion project with Blue Owl Capital and Alphabet\u2019s \u20ac3 billion bond issue for AI and cloud expansion. <\/p>\n
While AI investment growth is hard to sustain, Quilter\u2019s Barringer told Euronews: \u201cIf CapEx starts to moderate later this year, markets may start to get nervous.\u201d<\/p>\n
Other factors to watch include return on invested capital and rising yields and inflation pressures, which could signal a higher cost of capital and a bubble approaching its end.<\/p>\n
\u201cBut we\u2019re not there yet,\u201d said Savary.<\/p>\n
Further concerns and how to hedge against market turbulence<\/p>\n
Even as tech companies ride the AI wave, inflated expectations for future profits may prove difficult to meet.<\/p>\n
\u201cThe sceptics\u2019 main problem may not be with AI\u2019s potential itself, but with the valuations investors are paying for that potential and the speed at which they expect it to materialise,\u201d said AJ Bell investment director Russ Mould.<\/p>\n
A recent report by BCA reflects the mounting reasons to question the AI narrative, but the technology \u201cremains a potent force\u201d, said the group.<\/p>\n
If investor optimism does slow, \u201ca sharp correction in tech could still have ripple effects across broader markets, given the sector\u2019s dominant weight in global indices,\u201d Barringer said. He added that other regions and asset classes, such as bonds and commodities, would be less directly affected and could provide an important balance during a downturn.<\/p>\n
According to Emma Wall, chief investment strategist at Hargreaves Lansdown, \u201cinvestors should use this opportunity to crystallise impressive gains and diversify their portfolios to include a range of sectors, geographies and asset classes \u2014 adding resilience to portfolios. The gold price tipping up is screaming a warning again \u2014 a siren that this rally will not last.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"An estimated half a trillion dollars was wiped out from the financial markets this week, as some of…\n","protected":false},"author":2,"featured_media":266251,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[254,64,63,99,164,17493,2291,9074,5464,69996],"class_list":{"0":"post-266250","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-artificial-intelligence","9":"tag-au","10":"tag-australia","11":"tag-business","12":"tag-economy","13":"tag-market-crash","14":"tag-nvidia","15":"tag-prices","16":"tag-shares","17":"tag-stock-exchange"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/266250","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=266250"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/266250\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/266251"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=266250"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=266250"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=266250"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}