The fell further on Friday, as AI fatigue was exacerbated by what investors feared could be another “DeepSeek” moment.
This time the culprit was Chinese startup Moonshot, who announced that its new model Kimi K3 narrowed the gap in rivalling the performance of the likes of Anthropic and OpenAI in the US. Alongside early reports that the model could also be cheaper, although fully untested as yet, this led to renewed concerns on the level of investment currently being diverted towards AI spending and the likelihood of a return on such spending.
The Nasdaq weakness left the index down by 2.9% on the week, although it remains ahead by 9.8% so far this year. Meanwhile, the VanEck Semiconductor ETF (NASDAQ:) has now fallen by 9% over the last four weeks with demand for AI apparently becoming more price sensitive, suggesting that the theme may be maturing as opposed to the initial breakout which left stocks significantly higher.
Nor was the pressure confined to the tech sector, with Netflix shares falling by more than 7% after an update which fed into investor concerns that growth may have plateaued in the face of ever-increasing competition. It also demonstrated the high level of expectation going into this quarterly earnings season and how misses of any description are likely to be punished. Investor mettle will be tested again this week with another busy round of corporate earnings, including Mag 7 constituents Alphabe (NASDAQ:) and Tesla (NASDAQ:), tech bellwethers International Business Machines (NYSE:) and Intel (NASDAQ:), as well as updated from the likes of AT&T and General Motors.
Quite apart from these potential banana skins, an escalation of tensions between the US and Iran lifted back to almost $91 per barrel, with rising to 5% as a result. The ongoing pressure on inflation has proved to be something of a headache for central banks, particularly those whose underlying economies are showing weak growth which would normally signal the need for a reduction in interest rates. For the likes of the Bank of England and the ECB, the likely direction of travel still seems to be upwards for rates despite the underlying sluggishness.
For the time being, US markets have plenty of gas in the tank ahead of the impending volatility which these combined events are bringing and will bring. Quite apart from the net positive for the Nasdaq, the has added 8.5% and the benchmark 9% in the year to date, in part propelled by a stellar first quarter earnings season which could prove difficult to replicate this time around.
The also opened weakly, although losses were contained compared to some of its global peers which tend to have a much higher technology concentration. The drop was also mitigated by the inevitable strength of the oil majors, where index heavyweights Shell and BP followed the underlying commodity price higher. There was also some renewed interest in the likes of Babcock International and BAE Systems given the ongoing tensions in the Middle East.
However, there was otherwise a broad markdown which included a dip for International Consolidated Airlines on the oil price spike, further weakness in the housebuilding sector and a general sense of malaise which extended even to some of the more defensive names such as Unilever and Reckitt Benckiser. The primary index nonetheless remains ahead by 6.1% in the year to date, although the FTSE100 has been unable to mount a serious assault on the previous record high set at the end of February, which currently stands some 3.5% away.