Sevens Report’s Tom Essaye has issued a warning to technology investors, urging them to be wary amid growing uncertainty in the market. Essaye suggests the Nasdaq has not yet fallen enough to significantly impact the broader market; however, he highlights unprecedented uncertainty surrounding artificial intelligence and the technology-driven rally that has characterised the past three years.
This concern was underscored by Cisco’s near 12 per cent share price decline after the company indicated a potential narrowing of its profit margin in the April quarter, attributed to the ongoing memory-chip shortage. Cisco Systems, Inc. is a global technology conglomerate that designs, manufactures, and sells networking hardware, software, telecommunications equipment and other high-technology services and products. Cisco also provides services associated with their products.
In a note, Essaye cautioned against dismissing the current weakness as a minor setback, raising pertinent questions about the sustainability of the AI boom. These questions include financial considerations such as whether companies can sustain current spending levels and how long investors will tolerate it. Further concerns involve potential cannibalisation, the timeline for AI investments to yield earnings, and infrastructure limitations related to the data centre boom.
Essaye emphasises that this level of scepticism should be appreciated and advises investors to consider diversifying away from technology stocks. As of late afternoon trading in New York, the NYSE Fang + Index, which tracks megacap technology companies, was down 2 per cent.
