The bull case for the artificial intelligence trade suffered a heavy blow yesterday after quarterly results from Google and Tesla disappointed markets, sending shockwaves through global equities. London’s FTSE 100 closed down 1.2% at 8,112 points, its worst session in three weeks, as investors reassessed the lofty valuations of Big Tech stocks that have powered much of this year’s rally.
Google parent Alphabet reported advertising revenue of £61.4bn, below analyst expectations, while its cloud division – a key AI growth driver – showed signs of slowing expansion. Tesla, meanwhile, posted a 12% drop in operating margin as the electric vehicle maker slashed prices to defend market share. Both stocks fell more than 5% in after-hours trading, dragging the Nasdaq 100 down 1.8% on the day.
For UK pension holders and retail investors, the sell-off underscores the concentration risk in global portfolios. The so-called ‘Magnificent Seven’ tech giants have accounted for roughly 40% of the S&P 500’s gains this year, and any sustained downturn could ripple into UK-listed funds and multi-asset strategies. “The AI narrative was built on promise, but now the market wants proof of profitability,” said Sarah Drummond, senior equity analyst at London-based Oakleigh Capital. “Google and Tesla are showing that the transition from hype to hard numbers is far from smooth.”
The broader tech sector on the FTSE 100 also felt the heat, with chipmaker Arm Holdings sliding 3.4% and software group Sage Group losing 2.1%. The domestically focused FTSE 250 fared slightly better, dipping 0.4% as energy and utility stocks provided some ballast. Sterling weakened 0.3% against the dollar to $1.27, partly reflecting a flight to safe-haven assets.
Investors now face a critical question: is the AI trade simply maturing, or has the bubble begun to deflate? Analysts at Barclays cautioned that while AI infrastructure spending remains robust, the consumer-facing applications – from advertising to autonomous driving – may take longer to deliver returns than previously assumed. The Bank of England is also watching closely, as a sustained tech rout could dampen UK business confidence and delay investment decisions.