A big sell-off of tech stocks on Monday as fears about an artificial intelligence (AI) bubble continue to swirl took down major technology players in public markets, while local giant Naspers and its stable were largely insulated.
AI investment grew exponentially in 2023, driven by the rapid adoption and popularity of OpenAI’s ChatGPT since it was launched in November 2022. Technology companies have since sought to capitalise on the trend through AI-backed services or software platforms, with others benefiting from growing hardware demand to power these systems.
As such, over the past year, gains in global markets have been dominated by the so-called Magnificent 7 stocks — Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta and Tesla — all of which have AI to thank, at least in part, for their huge valuations.
But it appears that the global tech stock bubble may be about to burst for players that have bet the house on AI, reminding many of the 1995-2000 dot-com bubble in which the growth of internet-based companies fuelled a stock market frenzy that caused the Nasdaq composite index to rise nearly sevenfold from 743 to 5,048 points.
On Monday, the JSE tracked weaker global markets, falling more than 2% at one stage as concern about a potential recession in the US persisted, fuelling a widespread sell-off.
Nvidia, which is worth $2.69-trillion, took a big beating on Monday, with the stock down 5.56%. Seen as the poster child of the AI boom, due to the utility of its hardware in powering AI systems, the company has gained 105% since the start of 2024.
Shares firmer
Naspers and its associates — Amsterdam-listed Prosus and its largest investment, Tencent — were unscathed by the sell-off. While all three companies have stated that AI will be a big focus, their exposure to AI hardware, cloud and large language models is far lower than that of their US counterparts, or Asian players such as Taiwan Semiconductor Manufacturing Company, the world’s biggest chipmaker, or South Korea’s Samsung Electronics.
By market close Naspers shares were 0.98% firmer, with Prosus adding 0.78%. Their largest constituent, Tencent, lost just 0.45% in Hong Kong.
A better-than-expected services PMI print also helped mainland China markets buck the trend.
While the JSE felt the effects of the global sell-off, it is likely that this would have been worse if the Naspers stable or other large technology counters had been affected.
Jacques Conradie, CEO of hedge fund Peregrine Capital, told Business Day that local investors looking for exposure to AI have had to look beyond SA’s shores.
“There are some themes, such as AI, that unfortunately, given the makeup of the JSE, you can’t get exposure to in SA. So if you want to take advantage of those for investors, you have to have an open mind to offshore opportunities.”
PSG Asset Management’s Philipp Wörz and Greg Hopkins recently highlighted clear parallels to the period leading up to the dot-com bubble.
“We are seeing extreme euphoria in the market, a fear of losing out, complacency in terms of the assumed risks, and importantly, lofty expectations for future returns.
“Amid the euphoria, investors are overlooking the cyclical factors driving these shares’ performance: low inflation, abundant liquidity, and US economic growth. It is doubtful these conditions will persist, which may lead to disappointment.”
For now, the latest US jobs reports appear to back this sentiment.
The JSE all share ended the day 1.19% weaker.
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