CNA Explains: Why AI stocks are whipsawing markets from Wall Street to Seoul

“AI stocks have been in focus and have done well due to their ability and capability to bring the new technology into the market, which will drive permanent and increased usage over the long term,” RHB Singapore’s research analyst Alfie Yeo told CNA. 

“However, amid higher interest rates and inflation concerns in the US, the focus in recent days has now shifted to the clarity of future returns vs initial investment … in this space.”

Chris Beauchamp, chief market analyst at IG, noted that as with every trend, the AI sector will also face rocky patches. “The journey has become more volatile now that the initial rush of buying has slowed,” he added.

The tech-heavy Nasdaq Composite – often seen as a proxy for AI-linked stocks – has reflected these swings. 

It fell into correction territory earlier this year amid broader market jitters tied to uncertainties around the US-Iran war. The index plunged nearly 11 per cent in March from its last record high in October last year, before rallying 15.3 per cent in April.

Such swings reflect both profit-taking and opportunistic buying.

“After their huge rally, many tech stocks face much pricier valuations, and as a result investors have become more skittish about possible weakness in earnings,” Beauchamp said.

“Having made such big gains of late, the temptation to book profits is becoming hard to resist.”

After the latest dip, investors have in turn rushed in to pick up bargains. 

“After last week’s record selling in big tech, buyers returned to the same names they were throwing overboard only days earlier,” said SPI Asset Management’s Stephen Innes.

“That does not mean the AI trade has suddenly been cured. It means the patient stopped bleeding long enough for the surgeons to begin bidding the stock back up.”