(SeaPRwire) – By: Ethan Gallagher
This week’s tech selloff wasn’t just a case of investors overreacting to quarterly reports. It was a long-feared convergence of two existential pressures for US big tech: out-of-control AI spending budgets and newly imposed trade tariffs that will jack up the cost of every component needed to run those AI systems.
Let’s start with the official numbers. The Magnificent Seven lost nearly $800 billion in market value in a single Thursday session. The Dow edged up 0.3% Friday. The S&P 500 hovered near flat. The Nasdaq slipped 0.4% as tech continued to drag. The equal-weight S&P 500 ETF was up 0.5% that same day. That means most stocks were fine. Only the giant megacap tech names were dragging the index down. Intel was the rare bright spot. It beat Wall Street earnings estimates and saw share gains. Alphabet and Tesla’s surging AI spending triggered the initial rout. Investors balked at the lack of near-term profit from those investments. Verizon and American Express beat earnings but missed revenue estimates, their stocks fell despite the profit wins. NextEra Energy beat EPS but missed revenue, and its stock rose.
Now turn to the trade front. Trump’s new 10% to 12.5% Section 301 tariffs took effect overnight. They apply to nearly all US imports. The White House noted the tariffs were structured to hold up better legally than past versions. They exempted energy products to avoid worsening inflation. Brent crude briefly hit $100 a barrel earlier in the week. Then it fell 2.8% to under $98 Friday. Still, the benchmark notched a weekly gain. Traders also had fresh economic data to parse, including S&P Global’s July PMI readings and new home sales figures. The iShares Semiconductor ETF dropped 4.3% Friday, as investors priced in higher input costs for chip makers.
US tech firms can’t just throw more cash at AI data centers to fix this problem. They now have to pay more for the foreign parts to build and run those centers, all while investors demand faster profit growth.
Author bio: Ethan Gallagher, Silicon Valley Hardware Architect and Infrastructure Strategist advising cloud and semiconductor firms.