Dow Jones futures decline as AI rally falters, Walmart earnings in focus
- Dow Jones futures edge lower amid mounting concerns over stretched valuations and the sustainability of the AI-driven rally.
- Market sentiment remains cautious as the FOMC Meeting Minutes indicated that most Fed members favored holding rates steady.
- Traders await earnings reports from Walmart and Workday, followed by US Purchasing Managers Index data.
Dow Jones futures fall by 0.11%, trading around 44,950, along with the S&P 500 futures and Nasdaq 100 futures steady around 6,400 and 23,300, respectively, during European hours on Thursday ahead of the opening of the North American session.
US stock futures struggle after a tech-led Wall Street selloff, amid growing concerns over stretched valuations and the sustainability of the AI-driven rally. Many factors are cited behind the selloff, including recent remarks from OpenAI CEO Sam Altman suggesting the artificial-intelligence boom shows bubble-like signs.
On Wednesday’s regular market, the Nasdaq Composite slid as much as 1.92% before paring losses to close 0.67% lower, while the S&P 500 slipped 0.24%. Big Tech and chipmakers extended losses as investors rotated out of high-flying stocks. Amazon, Apple, and Alphabet each fell over 1%, while Broadcom slipped 1.3% and Intel tumbled 7%, per CNBC.
Traders may adopt caution as the Federal Open Market Committee’s (FOMC) Minutes for the July 29-30 meeting indicated that most Federal Reserve (Fed) officials favored holding rates steady. Policymakers emphasized that inflation risks outweighed labor market concerns during last month’s meeting. The CME FedWatch tool suggests that Fed funds futures traders are currently pricing in an 82% chance of a rate cut in September.
Traders will likely observe results from Walmart and Workday later in the day. The preliminary S&P Global ), along with weekly Initial Jobless Claims data, will also be eyed. Market participants will likely shift their focus toward Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium in Wyoming on Friday, which may provide clues about the September policy decision.
AI stocks FAQs
First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.
There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.
Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.
Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.
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