Tech shares came under pressure Friday following renewed US-China tensions after President Donald Trump threatened a “massive increase” in tariffs and hinted at canceling a planned meeting with Chinese President Xi Jinping.
The remarks, posted on Trump’s Truth Social account, came in response to Beijing’s announcement that it will tighten restrictions on rare earth exports effective December 1.
Wall Street was firmly in the red on Friday afternoon, with the tech-laden Nasdaq down 2.3%, the S&P 500 down 1.8% and the Dow Jones slid 1.2%.
The escalation has created “a white knuckle moment for the markets,” with technology names leading the decline, according to Wedbush analysts.
“After a relatively calm few months and improving relations between the US and China this step up in tensions has created a white knuckle moment for the markets with tech stocks under major pressure today,” the firm wrote in a note to clients.
Despite the selloff, Wedbush urged investors not to overreact.
“We continue to believe the bark will likely be worse than bite this time around as cooler heads prevail,” analysts wrote, framing the latest rhetoric as part of a “game of high stakes poker going on between the US and China in this AI Revolution.”
Wedbush noted that Beijing’s move comes amid “more scrutiny in Beijing around Nvidia’s golden chips,” reflecting how competition over artificial intelligence technology has become a central element of the broader economic rivalry.
Still, the analysts reiterated their constructive stance on the sector, calling the pullback an opportunity to accumulate shares in leading companies.
“These moments we view as buying opportunities to own the winners in semis, software, Big Tech, and the AI future,” Wedbush wrote, adding that tensions “will not bubble up into a much more tense time vs. the nervous period of time we saw in April.”
The analysts remain upbeat about technology’s outlook into year-end.
“We have barely scratched the surface of this 4th Industrial Revolution now playing out around the world led by the Big Tech stalwarts such as Nvidia Corp (NASDAQ:NVDA, ETR:NVD), Microsoft Corp (NASDAQ:MSFT), the Messi of AI Palantir Technologies Inc (NYSE:PLTR), Meta Platforms Inc (NASDAQ:META, ETR:FB2A, SWX:FB), Alphabet Inc (NASDAQ:GOOG), and Amazon.com Inc (NASDAQ:AMZN),” Wedbush wrote.
The analysts expect that “tech stocks will be strong into year-end and could be up another 7%+ into the rest of the year as the next part of this AI Revolution takes hold.”
The firm pointed to new investments by OpenAI into Nvidia and Advanced Micro Devices Inc (NASDAQ:AMD, ETR:AMD) as evidence of “capacity buildout and demand drivers happening on the enterprise front,” which are creating “positive ripples for the 2nd/3rd/4th derivatives of the AI Revolution.”
Wedbush concluded that the sector remains in the early stages of long-term growth, describing this period as “a 1996 Moment... and NOT a 1999 Moment.”
“Sell-offs like today we encourage investors to buy the tech winners and not head for elevators despite this war of words between Trump and Xi.”
Gold not spared
Not even gold was spared from Friday’s selloff, with prices tumbling back below $4,000 an ounce after a recent rally.
The yellow metal has also enjoyed a scorching rally in recent weeks, but it is now back below $4,000 an ounce.
“Ironically, the sell off in AI stocks may weigh on the gold price, since gold was also being bought as a hedge against tech stock exuberance,” XTB research director Kathleen Brooks said.
“Thus, Friday’s selloff could ultimately ease concerns about the AI trade being in a bubble, and we will be looking to see if there is any buying interest at the start of next week.”
She concluded: “This was a bad week for stocks. The S&P 500 is lower by 1.5% so far this week, which is the biggest weekly decline for US stocks since August.”