Stocks fell on Tuesday, pressured by falling shares of artificial intelligence-related firms like Palantir, as investors grew concerned about the valuations of market-leading stocks.
The S&P 500 fell 1.17% to close at 6,771.55, while the Nasdaq Composite fell 2.04% to end at 23,348.64. The Dow Jones Industrial Average lost 251.44 points, or 0.53%, to 47,085.24.
Shares of Palantir fell about 8%, even after the software company beat Wall Street estimates for the third quarter and gave strong guidance, boosted by growth in its artificial intelligence business. The stock, which is up more than 150% this year, trades at more than 200 times forward earnings. That means investors in that name and other AI stocks expect firms to continue to significantly raise their profit and revenue forecasts to justify continuing to buy the stock.
Oracle, which has a forward P/E of over 33, fell nearly 4%, paring its nearly 50% gain this year. Chipmaker AMD, which has more than doubled this year, lost nearly 4%. Other AI stocks like Nvidia and Amazon also retreated.
Gains in AI stocks lifted the S&P 500’s forward price-to-earnings ratio above 23, near its highest level since 2000, according to FactSet. As those stocks have lifted the broader market to new highs in recent months, Ameriprise’s Anthony Saglimbene said in an interview with CNBC that without a pullback, valuations are starting to get “really stretched,” SEEbiz reports.
“We haven’t seen any major corrections or any real pressure on stocks since April,” said the firm’s chief market strategist. “Profits are good, but I think investors are starting to wonder, based on the pace of investment [kapitalnih izdataka] of some of these key big tech firms, ‘Are you going to see profit growth over the next year that will justify the level of capital expenditures?’”
Comments from the CEOs of Goldman Sachs and Morgan Stanley on Tuesday further dampened the loss of confidence among investors. Goldman’s David Solomon said “it is likely that there will be a 10 to 20% decline in equity markets sometime in the next 12 to 24 months.” In addition, Morgan Stanley CEO Ted Pick said: “We should also welcome the possibility that there will be a decline, a 10 to 15% decline that is not caused by some sort of macro cliff effect.”
