Shares of tech companies experienced a decline on Wednesday following underwhelming earnings reports from two major market players. The Nasdaq Composite dropped by 2.8%, marking its most significant daily percentage decline since December 2022. The S&P 500 and the Dow also saw decreases of 1.7% and 0.9%, respectively.
The dip in Big Tech stocks was influenced by Tesla's second-quarter results, which revealed a consecutive drop in quarterly profit, with profits plummeting over 40% from the previous year. Tesla is facing heightened competition from both domestic and international automakers, as well as a slowdown in electric vehicle sales growth. Consequently, Tesla shares fell by 10.8% on Wednesday, with the company cautioning that its vehicle volume growth rate for the year may be significantly lower than that of 2023.
Alphabet, the parent company of Google, also experienced a decline of 4.7% after reporting lower-than-expected YouTube advertising revenue.
The recent tech stock tumble is part of a broader trend that began last week, driven by a favorable inflation report and robust economic data that led investors to speculate on a potential interest rate cut by the Federal Reserve in September. This shift has seen investors moving away from tech giants that previously drove stock market gains towards smaller companies that had been adversely affected by high interest rates. The Russell 2000, which monitors US small-cap stocks, has surged by 9.1% this month, outperforming the S&P 500's marginal 0.06% increase.
Additionally, the tech sector has been grappling with various challenges, including a global tech outage that has disrupted travel, increased the risk of cybercrime for consumers, and caused system failures in healthcare and government sectors. Last week, the Nasdaq experienced its worst day since 2022, exacerbated by reports suggesting that the Biden administration is considering imposing additional sanctions on Chinese tech firms and tightening semiconductor trade restrictions between the US and China.
