On Wednesday, S&P 500 and Nasdaq-100 futures experienced a decline as concerns over valuations related to the artificial intelligence sector persisted. This downturn followed the quarterly results announcement from chipmaker Advanced Micro Devices (AMD). Futures associated with the S&P 500 fell by 0.4%, while those linked to the Nasdaq-100 decreased by 0.6%. In contrast, futures for the Dow Jones Industrial Average hovered around the flatline, indicating a more stable outlook for that index.
Advanced Micro Devices saw its stock drop by over 4% after the company provided margin guidance that merely met analyst expectations, leaving investors craving more substantial insights. Although AMD reported third-quarter earnings and revenue that surpassed analyst predictions, the market reaction suggests that investors were anticipating a more robust performance.
This decline in AMD's stock comes on the heels of a significant drop in Palantir, which fell approximately 8% on Tuesday. Investors are increasingly concerned that the valuations of Palantir and the broader AI sector have become unsustainable. Notably, Palantir is currently trading at more than 200 times its forward earnings, whereas AMD trades at a more modest 41 times forward earnings. However, this valuation is still considerably above the S&P 500’s average multiple of 23.
Despite these valuation concerns, many investors maintain an optimistic outlook on the long-term potential of tech stocks. They believe that even if there is a near-term pullback in the market, the strength of spending in AI infrastructure will support a recovery. Liz Young Thomas, head of investment strategy at SoFi, expressed her views on CNBC's Closing Bell on Tuesday, stating, "I don't think that this is concerning today. I do think that as far as we've gotten, this extended, is concerning eventually, but I still think that we're going to run into year end. I still think the chase is on." She emphasized that the "large cap love affair" with tech stocks is likely to continue over the long term.
On the economic front, investors are expected to seek clarity through alternative data sources in place of traditional government reports. On Wednesday, the release of the ADP private payrolls report is anticipated, which could provide insights into employment trends. Additionally, data on weekly mortgage applications and the ISM services index are also set to be released, which could further influence market sentiment.
