Global stock markets sold off sharply this morning as investors continued to question whether the ‘Magnificent 7’ tech companies have fueled an unsustainable bubble in AI. The selling is brutal. Nasdaq 100 futures were down 0.36% this morning after losing 2.38% yesterday. S&P 500 futures were flat but volatile this morning, and the VIX volatility index was up 14% this morning. The S&P 500, which lost 1.56% yesterday, is now down 3% this month and is down over 5% from its recent high.
Bank of America said it all in a headline on a note this morning: “The bubbly is on ice.”
Nvidia’s blowout earnings call—which came in way above expectations on Wednesday—wasn’t good enough to persuade traders on Thursday that AI may be overcooked. Yesterday, Nvidia stock rose 5% before closing down 3.15%, an extraordinary reversal of fortune. Overnight trading wiped off another 2%. Deutsche Bank called it “a truly remarkable 24 hours, with a sequence of moves that were almost impossible to predict.”
Broadly, tech stocks are a bloodbath right now: Palantir lost 5.85% yesterday and is down even more today, premarket. Masayoshi Son’s Softbank Group lost 11% in Japan today.
“Weighing on the stock market is widespread uncertainty about the impact of AI infrastructure spending on the earnings of the AI data center corporations. Nvidia’s strong report didn’t do much to resolve the known unknowns about AI spending,” Ed Yardeni of Yardeni Research told clients. “Also unnerving investors are recent reports that Softbank and Thiel Macro sold all their Nvidia shares. Michael Burry (the ‘Big Short’) continues to raise doubts about the accounting practices of the major AI companies.”
The icy AI atmosphere was set by a note from ING published November 19, titled, “AI’s habit of making stuff up is a growing concern.” Analyst Julian Geib said the “leading AI systems generate false claims at a rate of up to 40%.” The number of errors committed by AI is increasing, he adds: “While older models refused to answer almost 40% of queries, newer models are designed to answer virtually every request. … this shift from accuracy to fluency poses serious misinformation risks.”
Crypto stocks are performing the worst. Coinbase was down 7.44% yesterday. Michael Saylor’s Bitcoin treasury company, Strategy, was down 5%. Both were down even more in overnight trading.
And that brings us to Bitcoin itself. Once touted as a “proven store of value,” the cryptocurrency has now lost 24% this month alone. It was sitting at $82K at the time of writing, far below its peak price of $124K.
“The latest crypto convulsions would constitute hyperinflation, if crypto were a currency. Annualizing Bitcoin’s recent spending power collapse is equivalent to roughly 800% inflation,” UBS’s Paul Donovan told clients this morning in a note that took an unusually harsh line against crypto.
“When crypto demand collapses, there is no possibility of reducing crypto supply to bring about balance. … Money supply needs to fall when money demand falls—if it cannot, hyperinflation will be a regular risk. Hyperinflation is why crypto cannot be a currency,” he said.
Here’s a snapshot of the markets ahead of the opening bell in New York this morning:
- S&P 500 futures were flat but volatile this morning. The last session closed down 1.56%.
- STOXX Europe 600 was down 0.8% in early trading.
- The U.K.’s FTSE 100 was down 0.49% in early trading.
- Japan’s Nikkei 225 was down 2.4%.
- China’s CSI 300 was down 2.44%.
- The South Korea KOSPI was down 3.79%.
- India’s NIFTY 50 is down 0.52%.
- Bitcoin was down at $82K.