AI worries continue to spook tech shares

General market commentary

Global equity markets delivered a mixed performance yesterday, shaped by a notable rotation beneath the surface and heightened volatility in technology. In the United States, gains in the Dow Jones contrasted with declines in the S and P 500 and the technology heavy Nasdaq, as investors continued to reduce exposure to large tech and growth stocks. US software stocks extended sharp losses, driven by fears that artificial intelligence could disrupt traditional business models, with the sell off sparked by new AI tools from Anthropic and spreading across technology, media and private credit. Energy and materials outperformed, while technology and communication services lagged, reflecting a shift towards better valued and more defensive areas. Earnings have broadly been strong, but investors are increasingly selective, demanding clearer paths to sustainable revenues and margins.

Outside the United States, equity performance has been more resilient. Developed international and emerging market equities have continued to outperform US markets this year, supported by more attractive valuations and improving growth expectations. Emerging markets have benefited in particular from strength in cyclical sectors and commodities. Precious metals were mixed on the day, though both gold and silver remain sharply higher for the year, underlining continued demand for diversification and perceived safe havens. Overall, markets suggest investors are broadening their opportunity set across regions, sectors and asset classes rather than relying on US technology leadership alone.

Latest market and economic update

Asian stock markets fell on Thursday, pulling back from recent record highs as technology shares came under pressure. South Korea led losses, with sharp declines in major chipmakers, while Japan, Hong Kong and China also weakened. Singapore and Australia edged lower, reflecting cautious sentiment and profit taking across the region.

US equity futures rose overnight as dip buyers returned after recent technology-led selling. S&P 500 and Nasdaq 100 futures advanced, while after hours trading saw Alphabet slip on higher AI spending plans. Despite this, AI linked stocks such as Nvidia and Broadcom gained, supported by optimism around long term artificial intelligence investment.

European equities were mixed on Wednesday, with the STOXX 600 hitting a record high while the STOXX 50 edged lower. Stock moves were driven by company results, with sharp declines in ASML, Siemens, Novo Nordisk and UBS. Gains in chemicals and banks offered support, helped by easing inflation and a steady European Central Bank policy outlook.

The US dollar strengthened to a near two week high as markets priced in a slower pace of Federal Reserve rate cuts. Hawkish signals on inflation supported the greenback, pushing the euro lower towards 1.1790. Resilient US services data and cautious outlooks from European central banks also underpinned dollar demand.

Oil

Bitcoin fell below $71,000 in early February, marking its weakest level since November 2024, after US officials ruled out any government support for the asset. The cryptocurrency is now more than 40% below its October peak, with investors warning losses could deepen as confidence fades in bitcoin’s role as a hedge against currency debasement.

The US ISM Services PMI held at 53.8 in January, beating forecasts and signalling continued expansion. Business activity strengthened, while growth in new orders and employment slowed. Price pressures increased despite falling fuel costs. ISM noted rising uncertainty linked to tariffs and geopolitics, with questions over whether higher prices will persist in coming months.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Alphabet plans a sharp increase in capital spending this year to expand AI infrastructure, citing ongoing capacity constraints. Strong AI and cloud momentum helped drive robust revenue growth, with cloud sales rising sharply. Executives said the investment supports long term growth and strengthens Google’s position as a leading hyperscaler alongside major global rivals.

Eli Lilly forecast strong growth for 2026, driven by robust demand for its obesity drugs, despite rising pricing pressure. The company projected revenue and profit well ahead of expectations, highlighting higher patient volumes and solid sales of Zepbound and Mounjaro. In contrast, rival Novo Nordisk warned of weaker sales amid intensifying price competition.

Sony reported a stronger third quarter, with net profit rising 11% on solid performances in gaming, music and image sensors. Operating income jumped 22%, prompting the company to raise its full year outlook. Improved margins, strong demand from smartphone makers and a weaker yen supported results, despite softer console hardware sales,

Global memory shortages are constraining smartphone and PC production, weighing on chip designers like Qualcomm and Arm, which warn supply pressures may last through 2027. Rising memory prices are curbing handset shipments, while PC makers including HP, Dell, Acer and Asus are considering Chinese suppliers to ease shortages and manage higher costs.

Uber reaffirmed its investment in autonomous vehicles despite weaker profits and a cautious outlook, citing higher taxes and efforts to keep rides affordable. The company plans to expand robotaxi services globally, arguing they will boost demand and efficiency. Strong trip growth highlighted resilient demand, even as near term earnings forecasts fell short of expectations.

Enphase Energy shares jumped 38% yesterday after fourth-quarter results prompted upgrades from BMO and RBC, signalling confidence the residential solar downturn has bottomed. Analysts pointed to stronger US demand, better-than-expected revenue guidance and improving visibility on sequential growth, supporting expectations of a recovery in revenues, margins and market share.

Snap beat fourth quarter revenue estimates as advertiser demand strengthened over the holidays, with active advertisers rising sharply. Improved cost control lifted profitability, while subscription growth supported revenue diversification. However, first quarter revenue guidance was slightly below expectations and user growth showed signs of slowing.

CME Group beat fourth quarter profit expectations as heightened market uncertainty drove record trading volumes and stronger demand for hedging products. Average daily volume hit a new high, supported by equity and metals trading. Management played down AI disruption risks and highlighted growing interest in prediction markets, while noting cost pressures during the quarter.

Hims and Hers Health announced the launch of a multi cancer early detection blood test developed by GRAIL, capable of screening for more than 50 cancer types. The test is designed to complement existing screenings and support earlier diagnosis. The move marks a significant expansion of the company’s digital health platform into preventative cancer care.

The US Nuclear Regulatory Commission said it is reorganising to align with President Donald Trump’s goal of accelerating nuclear reactor licensing. The regulator will appoint new leaders for reactor safety and draw up a revised organisational and management plan within 60 days, with implementation targeted by the end of September.

Wolfe Research said Nvidia’s valuation has become attractive again, arguing recent share consolidation has not undermined its long term earnings outlook. The firm sees upside to forecasts for 2026 and 2027, driven by unit growth and pricing tailwinds from next generation products. On this basis, Nvidia trades at an appealing multiple relative to its earnings potential.

BMO Capital said Oracle’s planned $45 to $50 billion financing is a constructive step that reduces investor uncertainty, despite earnings dilution and a lower price target. Strong demand for the debt portion signalled confidence in large scale AI investment. BMO cut earnings estimates but reiterated an Outperform rating, citing reduced financing risk.

Mizuho upgraded Booking Holdings to Outperform, saying recent weakness offers an attractive entry point as fears about artificial intelligence disrupting online travel are exaggerated. The broker argues OTAs will remain competitive as search evolves, supported by past market-share gains, favourable AI monetisation dynamics, solid financial growth and disciplined capital returns.

Bank of America argues SAP exemplifies how far software valuations have overshot AI risks. The bank says current pricing assumes unrealistic long-term revenue and profit declines, despite low churn, ongoing cloud migration and strong domain lock-in. It believes SAP’s embedded Business AI and proprietary data position it well to monetise AI and defend its market leadership.

Morgan Stanley downgraded Banco Santander to Equal-weight, citing limited upside after a strong rally and execution risks around its US expansion via the Webster acquisition. While deal economics appear reasonable, ambitious cost synergies, integration uncertainty and a full valuation leave investors unlikely to reward the strategy until progress is proven.

Baird upgraded GE Vernova to Outperform, saying concerns over gas power overcapacity are overstated and the energy infrastructure cycle remains in its early stages. The firm expects strong margin expansion, supported by higher priced equipment and services growth. A solid turbine backlog and tight future capacity support the positive outlook, leading to a higher price target.

PayPal suffered several downgrades after a sharp post-earnings sell-off, as analysts warned it is losing share in branded checkout amid intensifying competition. Brokers flagged weakening volumes, pressure from Apple Pay and Google Pay, and growing doubts over the pace and credibility of PayPal’s turnaround, despite some positives in BNPL.

BTIG upgraded Cloudflare to Buy, citing strong channel checks and improving momentum across core businesses ahead of results. The broker sees underappreciated potential in web security, growing share in Zero Trust and SASE, and strengthening developer services. BTIG expects durable high growth and views artificial intelligence as a tailwind, despite valuation concerns.

Upcoming data and events

Market focus today will be on major central bank decisions from the Bank of England and the European Central Bank, alongside key US labour data including jobless claims and JOLTs openings. Earnings are also in the spotlight, led by results from Amazon, Shell, Linde, KKR, BNP Paribas, BBVA and ConocoPhillips, shaping sentiment across global equities.

This information is provided solely for educational and informational purposes and should not be construed as investment advice, advice on specific investments or investment decisions, tax advice, legal advice, or any other form of professional or regulatory advice. The information does not take into account your personal circumstances and is provided to you on the express understanding that it does not constitute advice and should not be relied upon in making any investment decision. Investing in financial instruments involves risk. You should conduct your own research before making any investment decisions and seek the assistance of a licensed financial advisor if you are unsure. No person should act on any opinion or information contained in this document without first obtaining appropriate professional advice. Calamatta Cuschieri Investment Services Limited does not accept liability for any actions, proceedings, costs, demands, expenses, damages, or losses suffered as a result of reliance on the information herein.