Magnificent Seven set to shed $800 billion in value

By Aditya Soni

(Reuters) -Apple and other heavyweight companies sold off on Monday as U.S. recession fears and Berkshire Hathaway's sale of half of its stake in the iPhone maker further deflated a months-long rally fueled by optimism about AI.

Apple, Tesla, Alphabet and Amazon each dropped more than 4%, while Nvidia tumbled 7%, and Microsoft and Meta Platforms fell 3% as worries about a potential U.S. recession compounded investor concerns about massive spending to build AI infrastructure.

Those seven corporations were on track to lose about $800 billion in stock market value for the session, according to LSEG data.

"Expectations have arguably become too high for the so-called Magnificent Seven group of companies. Their success has made them untouchable in the eyes of investors and when they fall short of greatness, out come the knives," Dan Coatsworth, investment analyst at AJ Bell, said.

Chip stocks tumbled broadly, with PHLX semiconductor down 2.6%, bringing its loss in the past three sessions to 14%.

A third straight day of heavy selling across Wall Street followed a weak U.S. payrolls report on Friday that pushed investors across the globe to safe assets and spurred bets that the Federal Reserve will have to move quickly to cut interest rates to avoid a recession.

Over the weekend, Warren Buffett's Berkshire Hathaway said it had halved its stake in Apple - the conglomerate's top holding - raising worries about the outlook for the tech industry.

Also hitting Nvidia, the Information and Financial Times reported on design flaws and production hiccups that could delay the launch of the chip designer's new AI processor.

After driving gains on Wall Street for more than a year, big technology stocks have faced pressure in recent weeks over worries that building AI-optimized data centers is turning out to be more costly than expected, and that the payoff from that spending could take longer to realize.

Shares of Amazon, Microsoft and Alphabet - the three biggest providers of cloud-computing services - have fallen recently after their earnings reports sowed doubts that their margins could take a hit from the billions of dollars being spent on AI.

Despite the sell-off, Nvidia shares have nearly doubled in value this year. Following recent selling, Microsoft and Amazon remain up 5% in 2024, and Apple is up 7%. Tesla has dropped 21% year to date.

Some analysts said Monday's slide could provide investors an opportunity to buy Big Tech shares at more attractive valuations, pointing the expected long-term returns from their AI investments, as well as their strong market positions.

"Our playbook for 24 years covering tech stocks on the Street is we handhold investors through the panic and irrational global sell-offs to own the best tech names and winners driving the growth themes," said long-time tech bull Dan Ives, who is an analyst at Wedbush Securities.

(Reporting by Aditya Soni in Bengaluru; Additional reporting by Noel Randewich in Oakland, California; Editing by Arun Koyyur and Aurora Ellis)