The Magnificent Seven: Has the AI bubble burst?
Mint takes a look at the implications: The tech-heavy Nasdaq index nosedived 3.6% on July 24—its biggest single-day fall since October 2022, wiping off an astounding $1 trillion in investor wealth. The laggards included the top guns of the AI sector, such as Nvidia Corp, Broadcom and Arm Holdings. The broader S&P 500 index too could not escape the contagion, slumping 2.3% in its worst showing since December 2022.
This was also the first time that the benchmark S&P 500 had closed more than 2% down in 356 sessions, its longest streak since 2007. Global equity markets, too, struggled against a sea of red on Thursday. The immediate trigger was lacklustre earnings from electric carmaker Tesla and Google parent Alphabet, the first of the ‘Magnificent Seven’ megacaps to report quarterly numbers this earnings season.
Tesla posted its lowest profit margin in more than 5 years, even as it hiked spending on AI. Its electric vehicle deliveries have fallen for two quarters. While Alphabet beat revenue and profit estimates, investors were spooked by an advertising growth slowdown and high capital expenses.
Alphabet shares skidded 5%, while Tesla plunged over 12%—the worst single-day fall since September 2020. The Magnificent Seven—Microsoft, Apple, Tesla, Amazon, Meta, Alphabet and Nvidia—have been the drivers of the AI-fuelled rally on Wall Street over the past year. But as the latest earnings show, the hype around AI, machine learning and other technologies is now giving way to questions around execution and the time needed to recoup the massive investments.
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