Latest / Best of Business / Jeremy Hutton: Milford Asset Management on the 'financial wobbles' impacting the AI and chip sectors

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Jeremy Hutton: Milford Asset Management on the 'financial wobbles' impacting the AI and chip sectors · Best of Business

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  Speaker 1: You're listening to a podcast from News Talk SEDB. Follow
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  Speaker 2: Jeremy Hasson MILFD Acid Managements with us A. Jeremy, Hey,
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  Speaker 2: you have that. Okay, So it looks a little bit
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  Speaker 2: like in the past week, the old chip in the
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  Speaker 2: AI sect has been having some wobbles in the markets.
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  Speaker 2: What's been going on here?
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  Speaker 3: Yeah, so the US indexes, in a particular the Nasdaq,
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  Speaker 3: the techiv in NAZDAK has sold off around four percent
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  Speaker 3: in the past week or so. And if we look
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  Speaker 3: below the surface, it's the Magnificent seven. So the large
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  Speaker 3: seven tech stocks over there, and you know, they're down
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  Speaker 3: at least five percent in June, and even the giants
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  Speaker 3: like Microsoft down sixteen, Amazon thirteen percent. And it's really
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  Speaker 3: around some of this questions in AI and investors just
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  Speaker 3: just trying to decide whether the amount of spend has justified,
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  Speaker 3: are the returns there and sort of another point we
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  Speaker 3: talked about is just these giant companies are going to
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  Speaker 3: be used as a funding source for big I pos
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  Speaker 3: like SpaceX, but unfortunately even SpaceX hasn't avoided the sell off.
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  Speaker 3: It obviously pop posts the IPO, but it's given back
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  Speaker 3: around a quarter of its value over the past week
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  Speaker 3: as well, and.
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  Speaker 2: The chip sectors had even more violent moves down right.
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  Speaker 3: Yeah, I mean, we know these chip makers which have
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  Speaker 3: been crucial, crucial components in that AI data center buildout.
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  Speaker 3: They've been absolutely exploding this year in terms of share
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  Speaker 3: price share price gains. But I suppose alongside these questions
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  Speaker 3: in AI, these stocks are very very sensitive to any
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  Speaker 3: potential issues or reduced demand around that AI buildout, and
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  Speaker 3: it could cause some big retlacements in their share price.
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  Speaker 3: I mean the trout the trade, sorry, is very crowded
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  Speaker 3: and it's all going one way. So for example, Micron,
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  Speaker 3: which has been I suppose the poster child of this
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  Speaker 3: chips It's now the twelfth most valuable company in the world,
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  Speaker 3: but it was down thirteen percent in one day, so
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  Speaker 3: I mean it's been a winning trade, but there are
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  Speaker 3: a few risks building here on the horizon.
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  Speaker 2: All right, now, what is going on with the ETFs
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  Speaker 2: and the volatility?
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  Speaker 3: Yeah, I mean these ETFs have been or exchange traded
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  Speaker 3: funds is are also known have become very popular investments
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  Speaker 3: in the past few years, and they're effectively a basket
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  Speaker 3: of companies that you can just passively buy and they
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  Speaker 3: track a thematic or or a market index, and they've
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  Speaker 3: traditionally been very good diversification. They're cheap and simple, but
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  Speaker 3: they are starting to come with a few risks that
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  Speaker 3: aren't really well flagged. And we do see this happen
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  Speaker 3: during these sort of violen cell offs that we've had
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  Speaker 3: such as this week, and in theory, they're actually not
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  Speaker 3: becoming as diversified as you would expect. I mean, a
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  Speaker 3: lot of them are very very exposed to this AI
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  Speaker 3: theme and they do chase some of the very strong winners,
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  Speaker 3: such in the chip sector. So if you get these
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  Speaker 3: AI wobbles in the market in these thematics, then ETF
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  Speaker 3: investors they do tend to wear a big downside risk
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  Speaker 3: when these moves happen.
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  Speaker 2: Yeah, And the passive ETFs really exacerbate the moves up
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  Speaker 2: and down, don't they.
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  Speaker 3: Yeah. I mean they tend to follow the market direction
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  Speaker 3: in terms of buying and selling, and they don't really
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  Speaker 3: care about the price of the underlying security. So effectively,
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  Speaker 3: when the market goes down, these ETFs must sell units,
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  Speaker 3: they must sell stock in these underlying companies, and that
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  Speaker 3: does tend to exasperate the move down or up, depending
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  Speaker 3: which way are the market's going, And it does add
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  Speaker 3: to these volatilities and a lot of them have leveraging
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  Speaker 3: them too, And just given the size of these investors
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  Speaker 3: now in the market and these in these passive ETFs,
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  Speaker 3: it is causing someside outsized moves. So there's just another
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  Speaker 3: risk for investors to navigate in markets at the moment.
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  Speaker 2: Mate, It's always good to talk to you. Thank you
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  Speaker 2: so much, Jeremy, Jeremy Hut and Wilfed Acid
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