US markets fell during the week led by weakness in the communications sector on a frenzy investor wave of interest in artificial intelligence and the potential disruptive force that would ensue. The market focused on Jerome Powell’s speech where he acknowledged that the disinflationary process has started, however, he continues to guide that further interest rate increase are still on the cards. The Fed continue to see the strong labor market and high inflation reports as factors to follow through with its tightening monetary policy. The $S&P 500(.SPX)$ fell by -0.9% while the $NASDAQ(.IXIC)$ dropped by -1.0% overnight.
China equities also fell during the week as markets awaited more data on confirmation of the trajectory of economic recovery since it dropped its Covid-19 restrictions. Technology shares corrected as markets feared increasing competition in the food delivery space on unconfirmed reports of a new entrant, Douyin. While Douyin has subsequently denied the accuracy of the news this could potentially lead to more discount wars if plans of such a nationwide expansion prove to be true. The food delivery segment in China have largely been a duopoly that had been contested by Meituan (3690 HK) and Alibaba’s $Alibaba(BABA)$ Ele.me. HSCEI fell by -1.7% during the trading session.
$Alphabet(GOOGL)$ was among the companies most affected negatively amid new competition from a wave of competition from artificial chatbots such as ChatGPT, which the market fears will reduce its dominance in its search engine stronghold. Advanced language search models could have the potential to disrupt the search business with time as users become more acclimatized to the accuracy and relevance of these new advanced language models. This could potentially add to pressure in terms of the market share and profitability of the incumbent with more competition especially with the likes of other companies such as $Microsoft(MSFT)$ and $Baidu(BIDU)$ also joining the bandwagon.
Alphabet is no stranger in the AI space, in fact, it had been making strides through its subsidiary, DeepMind Technologies, that was acquired since 2014. In response to the competition, Alphabet has announced that its AI chatbot, Bard, will be made widely available in the coming weeks. Bard’s launch was disappointing with a mistake spotted in its answer in its promotional material, sending shares of Alphabet down by over 9% since the start of the week. Alphabet currently trades at 18.4x/15.6x consensus price to earnings ratio below its minus one standard deviation from its three-year mean. With rapid technological advancements, artificial intelligence is at the precipice of mass adoption and one could expect more disruptive innovations to come.
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