Tech Stocks Struggle as AI and Chip Controls Tighten
Tech and AI stocks are facing a turbulent market due to stricter chip controls aimed at China and weakening consumer confidence. The Nasdaq Composite has fallen nearly 1.1%.
Tech StocksAi StocksChip ControlsConsumer ConfidenceMarket NewsReal Estate NewsFeb 26, 2025
The Nasdaq Composite had fallen nearly 1.1% as of 1 38 p.m.
ET.
Shares of SoundHound AI (SOUN -5.62%) and IonQ (IONQ -4.83%) traded 6.2% and 6.4% lower, respectively.
Shares of C3.ai (AI -2.05%) were down 3.7%.
Tech stocks bore the brunt of the sell-off today after multiple media outlets reported that President Donald Trump's administration plans to expand chip controls largely aimed at China.
Former President Joe Biden had taken measures on this matter.
Right before leaving office, Biden proposed tougher chip controls that are technically set to go into effect within a few months.
Bloomberg, citing anonymous sources, reported today that officials in the Trump administration recently held meetings with officials in Japan and the Netherlands about preventing companies like Tokyo Electron and ASML Holding from storing gear used to make chips in China.
There have also been discussions about preventing a wider range of chips made by Nvidia from getting into the hands of Chinese companies.
Officials ramped up these proposals following the emergence of DeepSeek, which allegedly used older Nvidia chips to make a powerful AI chatbot much cheaper and with far fewer resources than thought possible.
In other market news, investors continue to de-risk on signs of a potentially weakening U.S.
consumer.
The latest sign came this morning from the Conference Board, which reported that Consumer Confidence in February fell 7 points to 98.3, the lowest level since June 2024 and the largest monthly decline since August 2021.
In more company-specific news, Cantor Fitzgerald analyst Thomas Blakey recently assumed coverage on SoundHound with a neutral rating and $10 price target.
Blakey is impressed with the AI-powered voice recognition company, writing in his research note that 'the company's Voice AI technology works better than any we have tested' and that he sees 'multiple pathways to growth' including from subscription revenue.
However, Blakey is neutral because he thinks shares have run too far too fast, trading around 20 times his 2026 estimated enterprise value.
Meanwhile, Bloomberg, citing anonymous sources, reported earlier today that IonQ, a company working to commercialize quantum computers, is close to finalizing the purchase of a company called ID Quantique, which focuses on network encryption specifically for quantum computers.
The transaction would value the company at about $250 million.
I don't see much company-specific news for C3.ai, although the company will report earnings tomorrow and is likely getting lumped in with broader sentiment surrounding AI.
After such an epic run in 2024, AI stocks are finally starting to feel some heat from many sources including Trump's potential chip controls, Nvidia's upcoming earnings tomorrow, the emergence of DeepSeek, high valuations, and weakening consumer sentiment.
SoundHound, IonQ, and C3.ai all have immense potential, but remember, they all trade at multibillion-dollar market caps and have yet to turn a profit, so any turbulence in AI or tech is likely to hit these names hard.
I personally don't think you need to rush into these names just yet, but if you do decide to invest, make sure to take a long-term approach, as the road this year could be rocky.
Frequently Asked Questions
What caused the sell-off in tech and AI stocks?
The sell-off in tech and AI stocks was primarily due to reports of further export controls aimed at China and signs of a weakening U.S. consumer, as indicated by a decline in consumer confidence.
What are the proposed chip controls and their implications?
The proposed chip controls aim to prevent companies from storing gear used to make chips in China and to restrict the export of a wider range of chips made by companies like Nvidia. This is expected to have significant implications for the global tech industry and AI development.
How has consumer confidence affected the market?
Consumer confidence in February fell 7 points to 98.3, the lowest level since June 2024. This decline has caused investors to de-risk and has contributed to the sell-off in tech and AI stocks.
Why is SoundHound AI considered a strong AI company?
SoundHound AI is considered a strong AI company due to its advanced voice recognition technology, which analysts believe works better than any they have tested. The company also has multiple pathways to growth, including subscription revenue.
What is IonQ's recent business move and its impact?
IonQ is close to finalizing the purchase of ID Quantique, a company that focuses on network encryption for quantum computers. This move is expected to enhance IonQ's capabilities in the quantum computing sector.
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