Nasdaq closes out its first four-quarter slump since dot-com crash
The once high flying tech sector has endured a heavy selloff this year amid concerns that the sector’s growth could be curtailed by rising interest rates. The tech-heavy Nasdaq Composite is down more than 14%.
Chris Hondros | Newsmakers | Getty Images
A lot has changed in technology since the dot-com boom and bust.
The internet went mobile. The data center went to the cloud. Cars are now driving themselves. Chatbots have gotten pretty smart.
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But one thing has remained. When the economy turns, investors rush for the exits. Despite a furious rally on Thursday, the tech-laden Nasdaq finished in the red for a fourth straight quarter, marking the longest such streak since the dot-bomb period of 2000 to 2001. The only other negative four-quarter stretch in the Nasdaq’s five-decade history was in 1983-84, when the video game market crashed.
This year marks the first time the Nasdaq has ever fallen all four quarters. It dropped 9.1% in the first three months of the year, followed by a second-quarter plunge of 22% and a third-quarter decline of 4.1%. It fell 1% in the fourth quarter because of an 8.7% drop in December.
For the full year, the Nasdaq slid 33%, its steepest decline since 2008 and the third-worst year on record. The drop 14 years ago came during the financial meltdown caused by the housing crisis.
“It’s really hard to be positive on tech right now,” Gene Munster, managing partner of Loup Ventures, told CNBC’s Brian Sullivan on Wednesday. “You feel like you’re missing something. You feel like you’re not getting the joke.”
Other than 2008, the only other year worse for the Nasdaq was 2000, when the dot-com bubble burst and the index sank 39%. Early dreams of the internet taking over the world were vaporized. Pets.com, infamous for the sock puppet, went public in February of that year and shut down nine months later. EToys, which held its IPO in 1999 and saw its market cap grow to almost $8 billion, sank in 2000, losing almost all its value before going bankrupt early the next year. Delivery company Kozmo.com never got its IPO off the ground, filing in March 2000 and withdrawing its offering in August.
Amazon had its worst year ever in 2000, dropping 80%. Cisco fell 29% and then another 53% the next year. Microsoft plummeted by more than 60% and Apple by over 70%.
The parallels to today are quite stark.
In 2022, the company formerly known as Facebook lost roughly two-thirds of its value as investors balked at a future in the metaverse. Tesla fell by a similar amount, as the carmaker long valued like a tech company crashed into reality. Amazon dropped by half.
The IPO market this year was non-existent, but many of the companies that went public last year at astronomical valuations lost 80% or more of their value.
Perhaps the closest analogy to 2000 was the crypto market this year. Digital currencies Bitcoin and ether plunged by more than 60%. Over $2 trillion in value was wiped out as speculators fled crypto. Numerous companies went bankrupt, most notably crypto exchange FTX, which collapsed after reaching a $32 billion valuation earlier in the year. Founder Sam Bankman-Fried now faces criminal fraud charges.
The only major crypto company traded on the Nasdaq is Coinbase, which went public last year. In 2022, its shares fell 86%, eliminating more than $45 billion in market cap. In total, Nasdaq companies have shed close to $9 trillion in value this year, according to FactSet.
At its peak in 2000, Nasdaq companies were worth about $6.6 trillion in total, and proceeded to lose about $5 trillion of that by the time the market bottomed in October 2002.
Don’t fight the fed
Despite the similarities, things are different today.
For the most part, the collapse of 2022 was less about businesses vanishing overnight and had more to do with investors and executives waking up to reality.
Companies are downsizing and getting revalued after a decade of growth fueled by cheap money. With the Fed raising rates to try and get inflation under control, investors have stopped putting a premium on rapid unprofitable growth and started demanding cash generation.
“If you’re looking solely at future cash flows without profitability, those are the companies that did really well in 2020, and those are not as defensible today,” Shannon Saccocia, chief investment officer of SVB Private, told CNBC’s “Closing Bell: Overtime” on Tuesday. “The tech is dead narrative is probably in place for the next couple of quarters,” Saccocia said, adding that some parts of the sector “will have light at the end of this tunnel.”
The tunnel she’s describing is the continuing rate increases by the Fed, which may only end if the economy enters a recession. Either scenario is troubling for much of technology, which tends to thrive when the economy is in growth mode.
In mid-December, the Fed raised its benchmark interest rate to the highest in 15 years, lifting it to a target range of 4.25% to 4.5%. The rate was anchored near zero through the pandemic as well as in the years that followed the financial crisis.
Tech investor Chamath Palihapitiya told CNBC in late October that more than a decade of zero interest rates “perverted the market” and “allowed manias and asset bubbles to build in every single part of the economy.”
Palihapitiya took as much advantage as anyone of the cheap money available, pioneering investments in special purpose acquisition companies (SPACs), blank-check entities that hunt for companies to take public through a reverse merger.
With no yield available in fixed income and with tech attracting stratospheric valuations, SPACs took off, raising more than $160 billion on U.S. exchanges in 2021, nearly double the prior year, according to data from SPAC Research. That number sank to $13.4 billion this year. CNBC’s Post-SPAC index, comprised of the largest companies that have debuted via SPACs in the last two years, lost two-thirds of its value in 2022.
SPACs slumped in 2022
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‘Bargain basement’ shopping
Predicting a bottom, as all investors know, is a fool’s errand. No two crises are alike, and the economy has changed dramatically since the 2008 housing collapse and even more since the 2000 dot-com crash.
But few market prognosticators are expecting much of a bounce back in 2023. Loup’s Munster said his fund is holding 50% cash, adding that, “if we thought we were at the bottom we’d be deploying today.”
Duncan Davidson, founding partner of venture firm Bullpen Capital, expects more pain ahead as well. He looks at the dot-com era, when it took two years and seven months to go from peak to trough. As of Friday, it’s been just over 13 months since the Nasdaq hit its record price.
For private equity investors, in 2023, “I think we’re going to see a lot of bargain basement snarfing up of companies,” said Davidson, who got started in tech investing in the 1980s. To get to the market bottom, “we may have two years to go,” he said.
Tik Tok creators gather before a press conference to voice their opposition to the “Protecting Americans from Foreign Adversary Controlled Applications Act,” pending crackdown legislation on TikTok in the House of Representatives, on Capitol Hill in Washington, U.S., March 12, 2024.
Craig Hudson | Reuters
The Supreme Court on Friday will hear oral arguments in the case involving the future of TikTok in the U.S., which could ban the popular app as soon as next week.
The justices will consider whether the Protecting Americans from Foreign Adversary Controlled Applications Act, the law that targets TikTok’s ban and imposes harsh civil penalties for app “entities” that continue to carry the service after Jan.19, violates the U.S. Constitution’s free speech protections.
It’s unclear when the court will hand down a decision, and if China’s ByteDance continues to refuse to divest TikTok to an American company, it faces a complete ban nationwide.
What will change about the user experience?
The roughly 115 million U.S. TikTok monthly active users could face a range of scenarios depending on when the Supreme Court hands down a decision.
If no word comes before the law takes effect on Jan. 19 and the ban goes through, it’s possible that users would still be able to post or engage with the app if they already have it downloaded. However, those users would likely be unable to update or redownload the app after that date, multiple legal experts said.
Thousands of short-form video creators who generate income from TikTok through ad revenue, paid partnerships, merchandise and more will likely need to transition their businesses to other platforms, like YouTube or Instagram.
“Shutting down TikTok, even for a single day, would be a big deal, not just for people who create content on TikTok, but everyone who shares or views content,” said George Wang, a staff attorney at the Knight First Amendment Institute who helped write the institute’s amicus briefs on the case.
“It sets a really dangerous precedent for how we regulate speech online,” Wang said.
Who supports and opposes the ban?
Dozens of high-profile amicus briefs from organizations, members of Congress and President-elect Donald Trump were filed supporting both the government and ByteDance.
The government, led by Attorney General Merrick Garland, alleges that until ByteDance divests TikTok, the app remains a “powerful tool for espionage” and a “potent weapon for covert influence operations.”
Trump’s brief did not voice support for either side, but it did ask the court to oppose banning the platform and allow him to find a political resolution that allows the service to continue while addressing national security concerns.
The short-form video app played a notable role in both Trump and Democratic nominee Kamala Harris’ presidential campaigns in 2024, and it’s one of the most common news sources for younger voters.
In a September Truth Social post, Trump wrote in all caps Americans who want to save TikTok should vote for him. The post was quoted in his amicus brief.
What comes next?
It’s unclear when the Supreme Court will issue its ruling, but the case’s expedited hearing has some predicting that the court could issue a quick ruling.
The case will have “enormous implications” since TikTok’s user base in the U.S. is so large, said Erwin Chemerinsky, dean of Berkeley Law.
“It’s unprecedented for the government to prohibit platforms for speech, especially one so many people use,” Chemerinsky said. “Ultimately, this is a tension between free speech issues on the one hand and claims of national security on the other.”
WATCH: It appears TikTok could really get shut down, says Jim Cramer
Nvidia CEO Jensen Huang speaks about Project Digits personal AI supercomputer for researchers and students during a keynote address at the Consumer Electronics Show (CES) in Las Vegas, Nevada on January 6, 2025. Gadgets, robots and vehicles imbued with artificial intelligence will once again vie for attention at the Consumer Electronics Show, as vendors behind the scenes will seek ways to deal with tariffs threatened by US President-elect Donald Trump. The annual Consumer Electronics Show (CES) opens formally in Las Vegas on January 7, 2025, but preceding days are packed with product announcements. (Photo by Patrick T. Fallon / AFP) (Photo by PATRICK T. FALLON/AFP via Getty Images)
Patrick T. Fallon | Afp | Getty Images
Nvidia CEO Jensen Huang was greeted as a rock star this week CES in Las Vegas, following an artificial intelligence boom that’s made the chipmaker the second most-valuable company in the world.
At his nearly two-hour keynote on Monday kicking off the annual conference, Huang packed a 12,000-seat arena, drawing comparisons to the way Steve Jobs would reveal products at Apple events.
Huang concluded with an Apple-like trick: a surprise product reveal. He presented one of Nvidia’s server racks and, using some stage magic, held up a much smaller version, which looked like a tiny cube of a computer.
“This is an AI supercomputer,” Huang said, while donning an alligator skin leather jacket. “It runs the entire Nvidia AI stack. All of Nvidia’s software runs on this.”
Huang said the computer is called Project Digits and runs off a relative of the Grace Blackwell graphics processing units (GPUs) that are currently powering the most advanced AI server clusters. The GPU is paired with an ARM-based Grace central processing unit (CPU). Nvidia worked with Chinese semiconductor company MediaTek to create the system-on-a chip called GB10.
Formerly known as the Consumer Electronics Show, CES is typically the spot to launch flashy and futuristic consumer gadgets. At this year’s show, which started on Tuesday and wraps up on Friday, several companies announced AI integrations with appliances, laptops and even grills. Other major announcements included a laptop from Lenovo which has a rollable screen that can expand vertically. There were also new robots, including a Roomba competitor with a robotic arm.
Unlike Nvidia’s traditional GPUs for gaming, Project Digits isn’t targeting consumers. instead, it’s aimed at machine learning researchers, smaller companies, and universities that want to developed advanced AI but don’t have the billions of dollars to build massive data centers or buy enough cloud credits.
“There’s a gaping hole for data scientists and ML researchers and who are actively working, who are actively building something,” Huang said. “Maybe you don’t need a giant cluster. You’re just developing the early versions of the model, and you’re iterating constantly. You could do it in the cloud, but it just costs a lot more money.”
The supercomputer will cost about $3,000 when it becomes available in May, Nvidia said, and will be available from the company itself as well as some of its manufacturing partners. Huang said Project Digits is a placeholder name, indicating it may change by the time the computer goes on sale.
“If you have a good name for it, reach out to us,” Huang said.
Diversifying its business
It’s a dramatically different kind of product from the GPUs that have driven Nvidia’s historic boom in the past two years. OpenAI, which launched ChatGPT in late 2022, and other AI model creators like Anthropic have joined with large cloud providers in snapping up Nvidia’s data center GPUs because of their ability to power the most intensive models and computing workloads.
Data center sales accounted for 88% of Nvidia’s $35 billion in revenue in the most recent quarter.
Wall Street is focused on Nvidia’s ability to diversify its business so that it’s less reliant on a handful of customers buying massive AI systems.
The Nvidia Project Digits supercomputer during the 2025 CES event in Las Vegas, Nevada, US, on Wednesday, Jan. 8, 2025.
Bridget Bennett | Bloomberg | Getty Images
“It was a little scary to see Nvidia come out with something so good for so little in price,” Melius Research analyst Ben Reitzes wrote in a note this week. He said Nvidia may have “stolen the show,” due to Project Digits as well other announcements including graphics cards for gaming, new robot chips and a deal with Toyota.
Project Digits, which runs Linux and the same Nvidia software used on the company’s GPU server clusters, represents a huge increase in capabilities for researchers and universities, said David Bader, director of the Institute for Data Science at New Jersey Institute of Technology.
Bader, who has worked on research projects with Nvidia in the past, said the computer appears to be able to handle enough data and information to train the biggest and most cutting-edge models. He told CNBC Anthropic, Google, Amazon and others “would pay $100 million to build a super computer for training” to get a system with these sorts of capabilities.
For $3,000, users can soon get a product they can plug into a standard electrical outlet in their home or office, Bader said. It’s particularly exciting for academics, who have often left for private industry in order to access bigger and more powerful computers, he said.
“Any student who is able to have one of these systems that cost roughly the same as a high-end laptop or gaming laptop, they’ll be able to do the same research and build the same models,” Bader said.
Reitzes said the computer may be Nvidia’s first move into the $50 billion market for PC and laptop chips.
“It’s not too hard to imagine it would be easy to just do it all themselves and allow the system to run Windows someday,” Reitzes wrote. “But I guess they don’t want to step on too many toes.”
Huang didn’t rule out that possibility when asked about it by Wall Street analysts on Tuesday.
He said that MediaTek may be able to sell the GB10 chip to other computer makers in the market. He made sure to leave some mystery in the air.
“Obviously, we have plans,” Huang said.
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