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Hi Compounders,
Markets remain volatile
The Nasdaq-100 suffered a sharp correction this week, falling approximately 4.9%, before staging a partial recovery on Friday. The sell-off reflects growing concerns about AI investment returns, expensive technology valuations, political uncertainty and interest rates.
1. What happened in the markets?
Nasdaq-100: approximately −4.9% for the week.
Nasdaq Composite: approximately −3.4%.
Thursday saw particularly heavy selling.
Friday brought a partial semiconductor-led recovery.
The rebound is encouraging, but it is too early to conclude that the correction is over.
2. Which stocks suffered most?
The biggest weekly casualties included:
Stock | Weekly performance |
|---|---|
Lumentum | −35.9% |
Seagate | −28.5% |
Marvell | −28.1% |
Western Digital | −28.0% |
SanDisk | −27.5% |
Nvidia | −8.8% |
Broadcom | −9.9% |
Memory, semiconductor and AI infrastructure companies experienced particularly heavy selling.
AppLovin was a notable winner, gaining approximately 71%, supported by strong earnings.
3. Are Democrats responsible?
The Democratic gains in the US midterm elections have introduced another concern for technology investors.
Potential restrictions on:
Data-centre construction and permits.
Electricity consumption and grid costs.
Water usage and environmental standards.
AI safety, privacy and copyright.
These measures could delay infrastructure expansion and increase costs.
However, the election is only one catalyst. There is not enough evidence to attribute the entire sell-off to political developments.
4. Earnings are becoming increasingly important
Investors are questioning whether Big Tech can justify its enormous AI investments.
AMD: Data-centre revenue grew 97%, demonstrating strong underlying AI demand.
Qualcomm: Smartphone chip weakness raised concerns.
Alphabet: Investors questioned advertising performance and rising expenditure.
Meta: Increasing AI investment raised questions about future returns.
Microsoft and Amazon: Cloud growth remains important evidence of AI monetisation.
The central issue is changing: investors want profits and cash flow, not simply announcements of larger AI spending budgets.
5. The interest-rate problem
US employment figures were stronger than expected, while inflation remains above the Federal Reserve's 2% target.
This could delay interest-rate cuts or keep borrowing costs elevated.
Higher bond yields particularly affect expensive growth stocks because their valuations depend heavily on future earnings.
6. What happens next?
Three possible outcomes:
Scenario | Outlook |
|---|---|
Bullish | AI demand remains strong and technology shares recover |
Base case | Continued volatility and selective stock recovery |
Bearish | Higher financing costs and weaker AI investment returns trigger further declines |
7. Stocks to watch
My priority watchlist:
Nvidia – AI chip demand.
AMD – semiconductor market-share growth.
Microsoft – Azure and AI monetisation.
Amazon – AWS growth.
Broadcom – custom AI chips and networking.
Arista Networks – AI data-centre networking.
GE Vernova – electricity infrastructure.
Final investment view
The AI revolution is not necessarily ending, but the market is becoming much more selective.
The first phase of the AI boom rewarded almost every company associated with artificial intelligence. The next phase will reward companies that can demonstrate sustainable revenue growth, profitability and free cash flow.
The Democratic election victory adds regulatory uncertainty, but earnings expectations, valuations and interest rates remain equally important.
My view is to avoid chasing the initial rebound and watch for sustained recovery in semiconductor shares, improving market breadth and stronger earnings guidance.
The next major test will be whether AI investment translates into real profits rather than simply more expensive infrastructure.
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