A tech sector stock market sell-off continued this week as investors worried that the hundreds of billions of dollars being invested by hyperscalers into AI infrastructure may take more time to show a return than expected.
The Nasdaq index dropped 2.4% last week, and another 2.8% between Monday and Thursday’s close this week (US time). That meant the index was down 2.8% in the year to date.
Meanwhile, the Dow Jones Industrial Average index was up 2.2% in the year to date, and the S&P 500 was down 0.4%.
Investors have been feeling jittery about the impacts of AI on the incumbent tech giants for a while now, leading to a ‘risk off’ environment so far in 2026, said Generate Investment Management investment specialist Greg Smith.
“You've got Alphabet and Amazon both delivering strong earnings but they're spending like US$200 billion in capex this year. I mean, that's equivalent to around three-quarters of New Zealand's annual GDP, so that's a big number.
“Obviously super-cap tech stocks had a very strong run last year. That drove the Nasdaq, which then, in turn, helped drive the S&P 500, and that’s sort of reversed this year.”
But Smith described the reaction as a kind of “sticker shock”, where investors have had an initial overreaction to the size of the bill, and said he expected the selling pressure to wear off once the level of capex growth begins to plateau.
AI adoption is also still at relatively low levels, with less than 10% of companies in the United States actually using AI, so there should be plenty of room for top line growth among the big tech names.
Still, it has been interesting to see something of an inversion of recent market dynamics, with tech stocks weakening, “older economy” stocks holding up well, and rest of the world and emerging markets indices performing better than US markets.
Even the gold market had a “massive wake-up call”, falling steeply at the start of February.
Yet the US market continues to grow at around 4%, with this week’s non-farm payrolls data showing 130,000 new jobs in January, up from 48,000 in December.
Red bands and banks
Meanwhile, in New Zealand, the earnings season kicked off in strong fashion with Skellerup’s half-year results showing a high degree of resilience, even in the face of US tariffs.
“If we saw similar results through the season, I think investors would be pretty well pleased,” said Smith.
The NZX-listed industrial and agricultural components manufacturer said on Thursday it expects a smaller hit from US trade tariffs than first thought, due to tighter cost management, pricing increases, and stockpiling inventory.
It is among the most exposed publicly listed firms to US trade tariffs, as it manufactures products across Vietnam, China, and New Zealand – all of which have been hit by levies of varying degrees. About 39% of the company’s group sales come from North America.
Skellerup flagged in August that it expected to reduce the effects of tariffs to about $5 million in FY26, before lowering the estimate in October to about $4m. This week, the company said it now expected the full-year hit to be about $2.5m.
“They had a record profit. They upgraded their guidance. And, talking tariffs, that has been less painful than feared. They upgraded guidance and are growing 14% at the top end …
“It’s been a confident start to the earnings season,” Smith said.
Finally, across the Ditch, ASB owner Commonwealth Bank of Australia’s stock was up over 10% as it reported steady profits, and ANZ Bank’s stock saw a 9.2% uptick after its own first-quarter result indicated new chief executive Nuno Matos’s downsizing strategy is working.
“It's quite an interesting contrast, isn't it? Because our property market is very subdued. Well, it's pretty terrible, right? While theirs is on fire.”
