Asian stocks fell on Tuesday, amid more losses on Wall Street as investors grew nervous about surprise tech valuations, with the focus this week on earnings from artificial intelligence chip titan Nvidia.
Growing worries that this year’s record rally is all about artificial intelligence have led some traders to question whether the billions spent on the industry may not yield the big returns expected.
Adding to the lackluster sentiment is concern that the Federal Reserve will decide against a third straight rate cut next month as stubborn inflation battles a weakening labor market.
This year’s rally has been driven by fears of missing out on AI traction and bets on falling US borrowing costs.
As a result, this week’s two major releases have been in the spotlight.
On Wednesday, Nvidia, at the forefront of artificial intelligence with its high-end chips, releases its latest earnings report, which will give an idea of the outlook for the sector.
Meanwhile, earnings from retailers Home Depot, Target and Walmart will provide insight into consumer sentiment.
Investors have become sensitive to any negative news related to the AI universe, and were jolted this week when it emerged that tech billionaire Peter Thiel’s hedge fund had unloaded its entire stake in Nvidia, which Bloomberg valued at about $100 million.
Neil Wilson of Saxo Markets said in a note: “Analysts sound optimistic ahead of the report. But the bar is very high and we know that if investors start faltering, the whole house of cards could collapse at any time.
“Profitability remains very strong in stocks that are at the heart of the AI bubble, but any weakness seen in (Q3) Nvidia would be severely punished by the markets.”
The US jobs report for September is expected to be released on Thursday after a delay due to the government shutdown. The data will provide a new snapshot of the world’s number one economy and give an idea of the likelihood of the next rate cut.
The chances of a December cut are about 50-50, and Fed officials have been more concerned about inflation than the labor market lately.
Bank chief Jerome Powell said last month that another cut in December there was no “solved decision” at the policy meeting, a comment echoed by many colleagues.
Still, Fed Governor Christopher Waller said on Monday that “my focus is on the labor market, and after months of weakness, it is unlikely that the September jobs report later this week or any other data that comes out in the next few weeks will change my view that another cut is in order.”