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Despite growing interest in AI, the broader technology sector continues to face challenges, with many companies “still in a recession.”
A September 9 Financial Times report revealed that while AI-driven giants like Nvidia and Microsoft are enjoying massive gains, many traditional tech firms are struggling to regain footing after the slowdown that began in 2022.
AI exuberance masks broad weakness in tech sector, say investors https://t.co/hYOHA5Ipdu
— FT Technology News (@fttechnews) September 9, 2024
This surge in AI enthusiasm has allowed major players to erase memories of the tech-dominated Nasdaq Composite’s 2022 decline when the index dropped nearly a third of its value.
However, outside the AI bubble, many technology businesses are battling stagnation, as highlighted by Tony Kim of BlackRock stating, “Outside of AI, there’s not much happening in tech.”
Sub-sectors like software, IT consulting, and electronic equipment production have been hit hard as weak demand and overstocking during the pandemic continue to haunt them.
Similarly, AI’s rapid growth has further strained these areas, redirecting customer investments towards AI technologies.
Dustin Moskovitz, CEO of Asana, reflected on the broader issue during a recent earnings call, highlighting how the pandemic’s overspending and current economic uncertainty are still weighing on tech firms.
“We’re still seeing the unwinding of over-hiring and overspending,” Moskovitz noted, adding that AI’s future impact remains uncertain.
Recent financial data also supports this view as the S&P 500 IT sub-index showed a slowdown in revenue growth, with an average 6.9% increase compared to a five-year average of 10%.
Small-cap firms fared worse, with tech ranking as the second-worst performer in the Russell 2000, where profits dropped 2.8%.
While AI continues to drive optimism, some investors anticipate a market rotation away from Big Tech stocks.
Tech strategist Ted Mortonson warns that generative AI is masking a downturn in other core sectors, and that hope for recovery isn’t a solid investment strategy.
Others, like Tony Wang of T Rowe Price, see signs of stabilization in macro-sensitive areas, with hopes that falling interest rates might ease pressure on the struggling segments of the tech industry.
