Taking a look at the price charts these past few days, you'd be forgiven for asking if the party is over for S&P/ASX 200 Index (ASX: XJO) artificial intelligence (AI) stocks.
In late morning trade on Monday, the benchmark index is down 2.7%.
On the technology front, the S&P/ASX All Technology Index (ASX: XTX) is down an even more painful 3.9%.
As for data centre developer NextDc Ltd (ASX: NXT), shares in the ASX 200 AI stock are down 3.6% at the time of writing, putting the stock down 8.4% over the past month. Longer term, the NextDc share price remains up 29% over a year.
It's a similar picture with business and accounting software provider Xero Ltd (ASX: XRO).
The Xero share price is down 4.8% today which sees shares down 7.6% since the 1 August closing bell. The Xero share price remains up 15.0% year to date.
So, what's going on?
Why are ASX 200 AI stocks under selling pressure?
The sell-off we're witnessing in ASX 200 AI stocks and the wider market mirrors what's happening in the United States stock markets.
The big AI-invested US technology companies have come under pressure on two fronts.
First, investors fear the Federal Reserve may have waited too long to cut interest rates, setting the world's biggest economy on course for a potential recession.
"Lower interest rates work for equities, except when it's being done in a hurry because things are bad," Kim Forrest, chief investment officer at Bokeh Capital Partners said (quoted by Bloomberg).
The second reason ASX 200 AI stocks are in retreat is that the market is increasingly questioning the time scale required for the big tech stocks to reap the rewards from the many billions of dollars they're investing in AI technologies. Slowing growth among the big companies reporting over the past two weeks has fanned those fears.
"Some of the earnings results that have come in over the last couple of weeks have reminded investors that there's a lot of really high expectations baked into these valuations," Burns McKinney, senior portfolio manager at NFJ Investment Group said.
With these fears in mind, shares in generative AI chip maker Nvidia Corporation (NASDAQ: NVDA) have dropped 14.8% over the past month. Though, like ASX 200 AI stocks Xero and NextDc, the Nvidia share price is still well up over the past year. In Nividia's case, by a whopping 140.1%.
The Warren Buffett effect
Legendary investor Warren Buffett isn't helping the case for global or ASX 200 AI stock either.
Over the weekend, Aussie investors learned that Buffett's Berkshire Hathaway sold US$75.5 billion worth of stocks over the second quarter of 2024 on a net basis.
On the AI front, Warren Buffett reduced the company's huge holding in Apple Inc (NASDAQ: AAPL) by almost 50%. Berkshire sold some 390 million Apple shares over the quarter and retains approximately 400 million shares.
The Apple share price has held up well, down just 2.8% over the past months of broader tech selling.
So, is the party over for ASX 200 AI shares?
The way I read these tea leaves, not at all over the long term.
But the party has clearly taken a pause. And some of the high-flying AI-linked stocks could certainly have further to fall before earnings catch up with investments and the festivities resume.
