Market Commentary

US technology shares were weighed down on Tuesday by growing concerns emerged that the heavy investments being made in artificial intelligence (AI) infrastructure by large technology companies may not generate the expected returns. Several semiconductor and technology companies recorded steep losses, with Micron, Lam Research, SanDisk, and Qualcomm each falling close to 10%. Tesla shed 5%, while Nvidia and Oracle retreated around 3.50%.

Meanwhile, SpaceX experienced heightened volatility, initially tumbling 16% before recovering some losses after announcing a bond issuance just one week after its initial public offering. The move added to investor concerns around the scale of capital expenditure required across the technology sector.

Despite lower energy prices, Treasury yields remained elevated following last week's hawkish signals from the Federal Reserve, limiting support for more economically sensitive sectors. However, gains in healthcare and consumer defensive stocks helped the Dow Jones Industrial Average remain broadly unchanged. The S&P 500 slipped close to 1% and the Nasdaq closed 1.51% lower.

Asian equity markets retreated sharply, led by a broad sell-off in technology shares as investors locked in profits following the sector’s strong AI-driven rally. The MSCI Asia Pacific Index declined, with major regional benchmarks ending the session significantly lower. The Nikkei dropped 3.55%, while the Shanghai and Hang Seng fell 1.42% and 1.89%, respectively.

Market sentiment was weighed down by a combination of factors, including concerns over increasing competition within the AI sector following senior leadership departures at Alphabet, heightened regulatory scrutiny in South Korea of leveraged semiconductor-linked investment products, and widespread profit-taking in technology stocks that had recorded substantial gains in recent months. Investors largely overlooked Nvidia’s announcement of expanded AI collaboration with SK Hynix, LG and Naver, as risk aversion and concerns over valuations dominated trading. Reports that SK Hynix had scaled back production of advanced AI chips in favour of commodity DRAM added to the caution.

European equities pulled back from record highs as a tech‑led sell‑off prompted a rotation out of risk assets. The Euro STOXX 50 fell 1.20% to 6 235, while the STOXX Europe 600 lost 0.50% to close at 636. Technology and semiconductor stocks led the declines, with ASML and Infineon dropping 5.50% and 5.80%, respectively, while industrial companies linked to data centre development also came under pressure, with Siemens and Schneider Electric falling 2.50% and 4%. In contrast, pharmaceutical stocks provided some support, with Sanofi gaining 1.50% after receiving European approval for its Cenrifki treatment.

In the UK, the FTSE 100 outperformed its European peers, edging higher as strength in defensive sectors helped offset broader market weakness. Healthcare and consumer-focused companies led the gains, with AstraZeneca, GSK, Unilever, and British American Tobacco all advancing. Bunzl was among the top performers, rising more than 5% after strong first-half results prompted the company to raise its annual revenue growth guidance. Political developments also attracted attention after Prime Minister Keir Starmer’s resignation, with Andy Burnham seen as a leading candidate to succeed him amid ongoing concerns about the UK’s rising public debt..

South African markets closed lower as the JSE All Share Index and Top 40, both fell by close to 1%. Resources led the decline dropping by 2.41%, while Metals and Mining decreased 2.10%.

Brent crude oil eased to around $77.15 per barrel, marking its lowest level in nearly three months, after signs of progress in efforts to ease tensions between the US and Iran, following an interim peace agreement and the introduction of a 60-day US waiver allowing global buyers, including US refiners, to purchase Iranian crude and refined fuel products. Market sentiment was further supported by discussions held in Switzerland, where both countries agreed to establish four working groups to address nuclear-related issues and sanctions. However, some differences remain, with Iran disputing US statements regarding the immediate return of international nuclear inspectors.

Meanwhile, precious metals also weakened with gold dropping 1.43% an ounce trading at $4 130.43 and silver slipping nearly 5%.