Wall Street suffers as Tesla and Google stocks falter
Nasdaq Composite and S&P 500 drop significantly
A sudden and sharp downturn gripped Wall Street on Wednesday as a dramatic sell-off in technology stocks sent indices plummeting to their lowest levels since late 2022.
The tech-heavy Nasdaq Composite suffered 3.6% decline, its worst day in over a year, while the broader S&P 500 tumbled 2.3%.
At the centre of the downturn were reports from two of the market's most influential companies: Alphabet [pdf] and Tesla.
Alphabet stock dropped 5% despite Q2 revenues being reasonably healthy. What triggered concerns was an earnings call where the company warned of limited Q3 revenue growth due to increased capital spending.
Elon Musk's electric vehicle firm Tesla saw its stock price plummet by 12.3% on Wednesday after reporting a steep decline in quarterly profits.
The company's net income plunged by 45% to $1.47 billion, falling short of Wall Street expectations. Soaring costs, largely driven by employee layoffs and hefty investments in AI, weighed heavily on the bottom line.
Elon Musk, Tesla's CEO, made the surprising announcement of postponing the robotaxi launch from August to October. Despite the delay, Musk remains bullish on the project, claiming it could potentially propel Tesla's valuation to $5 trillion.
Musk has doubled down on Tesla's autonomous driving ambitions, prioritising the development of the robotaxi over the much-anticipated $25,000 Model 2. The company is also making significant strides in robotics, with Optimus, a humanoid robot, set for limited production next year.
Despite these long-term aspirations, Tesla's immediate challenges are clear. The company must navigate a competitive electric vehicle market, control costs, and deliver on its ambitious promises to maintain investor confidence.
Investors have been increasingly wary of the market's overreliance on a handful of mega-cap tech companies, often referred to as the "Magnificent Seven". Wednesday's sell-off highlighted these concerns, as all seven companies experienced declines.
Nvidia, the chipmaker at the forefront of the AI revolution, saw its shares dip 6.8%. Other AI-related stocks, including Super Micro Computer and ASML Holdings, also suffered steep losses.
"I can't help thinking [that] if the tech sector does sneeze, the whole market could catch it," David Morrison, senior market analyst at Trade Nation, told The Guardian.
Danni Hewson, head of financial analysis at AJ Bell, said: "Whilst Alphabet's news wasn't awful, the fact they're still ploughing billions into [artificial intelligence] has caused some to begin questioning when enough will be enough, or at least when the expenditure will deliver the kind of results investors have been salivating over elsewhere in the AI space."
"Elon Musk's attempts to get investors to look anywhere but at the bottom line has also backfired. Even if Tesla's CEO insists the company isn't just a carmaker, until robots or robo-taxis start to make money, EVs are the only game in Tesla town, and margins have been wrung out."
The broader economic outlook also cast a shadow over the market. Weakening regional economic data and a struggling housing market have raised questions about the strength of the US economy. While the possibility of interest rate cuts in September has boosted smaller company stocks, the overall market sentiment remains fragile.
Investors will now be closely watching the performance of other giants like Meta, Amazon, and Apple, which are set to report results next week.