This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:
It used to be the case that a powerful showing from the biggest tech companies could override whatever else was going on in the world.
As CEOs liked to put it, the macro environment was challenging, but the industry’s margins, protective moats, and maneuvering could still win the day. The war in Iran has strained that paradigm, as our colleague Dan Howley noted Monday.
Even as a monumental shift toward AI adoption is underway across corporate America — a new railroad! a new internet! — you wouldn’t know it based on Big Tech’s stock slump as the market rolls toward the second quarter’s earnings season kickoff.
Rising yields triggered by the US-Israel bombing campaign against Iran have derailed the tech rally. Instead of welcoming the next rate cut from the Fed, investors are bracing for an extended pause or even the slim but not impossible chance of a rate hike by the end of the year.
Tech exploited the chaos and screen fixations of the COVID pandemic and weathered the volatility of Trump’s trade war. But it has faltered in the first six weeks of the Iran conflict. In some cases, tech’s success has worked against it as investors took profits to limit their exposure. And in the broader investor flight, tech’s unofficial status as a safe haven has lost some of its luster.
Other criticisms that the tech industry has kept at bay appeared to breach tech’s proverbial high walls. All the second-guessing of AI’s uncertain returns has been reignited, as if Wall Street was looking for an excuse to unload on lofty valuations and a still largely unproven business model. The escalation of the Iran war acted like a destabilizing catalyst, inviting investors who had doubts about the AI trade to finally hit sell.
The timing of the war coincided with multiple strains of anti-AI sentiment, including heightened concerns over job displacement, the software apocalypse, and renewed skepticism of AI’s business direction and its place in everyday consumption, exemplified by OpenAI’s shuttering of AI video app Sora.
Tech bulls, however, have a case to wave all this off as a blip.
Stocks are way down, no doubt. But in six months’ time, perhaps when the fighting is over with some sort of resolution in place, this moment will look in retrospect like a fleeting panic. Look where the pandemic spat us all out.