Tech is under pressure again on Friday.
It was a brutal week of selling in the week, with the Nasdaq 100 down almost 1% on Friday. The pain was most concentrated in chip and memory stocks, two high-flying areas of the market that appear to finally be hitting a roadblock.
The iShares Semiconductor ETF, which is still up 99% year-to-date, sank another 3% on Friday.
Here's where US indexes stood shortly after the 9:30 a.m. opening bell on Friday:
- S&P 500: 7,317.20, down 0.55%
- Dow Jones Industrial Average: 51,729.34, down 0.37% (-191.28 points)
- Nasdaq Composite: 25,118.16, down 0.95%
Here were the biggest moves in the chips and memory sectors:
Investors also took in a report that Open AI's IPO could be delayed to next year, adding to the selling pressure that has already hammered chips in recent weeks.
Dan Ives, an analyst at Wedbush Securities known for his permabull view on tech and AI, said the tech sector is navigating the "Twilight Zone" in a note to clients on Friday.
The sell-off appears to be driven by two concerns, Ives said. One has to do with questions about when AI capex will translate in actual revenue. Amazon, Google, Meta, and Microsoft will spend around $725 billion in capex this year, though monetization plans for some firms remain unclear or are in the early stages.
"For some investors on a daily basis it feels like a 'Twilight Zone market' for many tech stocks," Ives wrote. "We are in a 'air pocket stage' right now where the $700 billion of Big Tech cap-ex this year is fueling the AI buildout...and tech investors are growing increasingly frustrated by the patience needed around Microsoft and Meta in particular, seeing the fruits of their labor."
Another concern is whether there will be a "breaking point" as computing and memory costs soar, he added.
"Is there a breaking point where enterprises need to slow down these massive AI buildouts and then the game of musical chairs stops and some are left without a chair...this speaks to some of the fears with the neoclouds and overall hyperscalers," Ives said.
Other areas of the market are holding up better, a sign that stocks are going through a "mega rotation" away from big tech and into cyclical and value sectors, Craig Johnson, the chief market technician at Piper Sandler, wrote in a note on Friday.
The market also appears to be in the process of picking new winners and losers in the AI trade, Richard Reyle, the CIO of Questar Capital Partners, said.
"The same hot money that chased Nvidia over the past few years has now discovered the memory stocks," he wrote in a note, adding that it looked like a "prudent" time for investors to take profits in the space.
"Memory space is largely a commodity, and these companies can't maintain this pricing power forever. Like gravity, the mean reversion is coming," he added.
