Global AI sell-off eases after bruising end of month performance

The global sell-off of artificial intelligence stocks eased on Monday as investors' moods improved due to falling oil prices. After a sharp decline in tech shares earlier in the week, the Nasdaq Composite and S&P 500 indexes recovered, rising by 1.2% and 0.7% respectively. This marked a significant rebound for the Nasdaq Composite, which had dropped 3.5% on Friday, marking its worst month in over a year. Over $3 trillion had been lost from the tech-heavy index since its peak early last month.

Amazon experienced a rebound, gaining 4.5%, after weaker-than-expected sales had previously caused a decline. Microsoft and Nvidia also saw increases of 0.6% and 1.9% respectively. However, Intel, which led the losses on Friday after a disappointing forecast, failed to recover and lost an additional 2.2%.

Barclays' global chair of research, Ajay Rajadhyaksha, noted that "the big call now is whether recent weeks are the first signs of an impending AI collapse", although he added that "in general, earnings have remained healthy".

In Asia, stocks rebounded, with Japan's Nikkei 225 dropping 0.3%, while South Korea's blue-chip index rose 2.2%, led by Samsung Electronics and SK Hynix. Hong Kong's Hang Seng index gained 0.4% and the Shanghai Composite increased 1.1%.

Caution remained in Asia, with some losses reported for memory-chip manufacturer Kioxia, which fell 15.7% after a forecast indicating demand for its products was starting to decline. Fujitsu also extended its losses from the previous week, slipping 2.9% to 3,514 yen. The group's losses reached 51% from its June peak.

The stock market recovery came amid falling energy prices, with Brent crude, the international oil benchmark, falling 6.9% to $106.4 per barrel. The decline was attributed to reports that the White House favored extending diplomatic avenues with Iran ahead of the US midterms before considering military escalation.

Analysts are awaiting the results of the US midterms on Tuesday, with polls indicating Republicans could lose control of both the House of Representatives and the Senate. Some have warned that Trump might launch renewed attacks on Iran once the election constraints are over, potentially causing oil prices to rise again.

Jason Hollands, managing director of Bestinvest, expressed concern that the performance of Democrats in the election could end the rebound of AI stocks. He noted that the details of AI could matter significantly, as it has been a major driver of financial markets in recent years. Democrats' proposed changes to data-centre operators bearing more electricity costs could impact the economics of new data centres and the wider AI investment boom.