The “fear trade” in AI makes a comeback

The most popular trading game on Wall Street at present is to imagine how a given sector might be wiped out by innovations built on artificial intelligence. No profession appears immune. Traders have no doubt asked AI itself. The result is a fair amount of damage, delivered in waves. Thursday’s session sent technology stocks back to the canvas, keeping markets occupied ahead of the release of US inflation data for January.

Perhaps in anticipation of this Friday the 13th, US markets once again chose to scare themselves yesterday. Technology shares tumbled 2 per cent, with some heavy falls, including Cisco, down 12 per cent after its quarterly results, and AppLovin, which shed 20 per cent, also following earnings. Yet it was arguably Apple’s 5 per cent decline that left the deepest mark on both investors’ minds and the tape, wiping roughly 200 billion dollars off the iPhone maker’s market value.

To add insult to injury, Apple risks losing its position as the world’s second-largest listed company to Alphabet, which is edging ever closer. Tim Cook’s group encapsulates the paradox of the times: heavily exposed to tariffs, yet adored by American consumers. Penalised by rising electronic component costs, yet still enjoying considerable pricing power. Innovative, yet two steps behind in AI, a drawback for some investors who view Apple as yesterday’s story, but a source of appeal for others who note that the company is not burning hundreds of billions without clear visibility on returns.

In short, numerous US stocks posted spectacular declines yesterday, against a backdrop still shaped by a witch-hunt targeting sectors deemed vulnerable to AI. After software groups, wealth managers, publishers and others besides, panic yesterday swept through transport companies. At first glance, one might have thought an analyst had wondered whether Kühne und Nagel’s logistics solutions would soon be replaced by robots, drones and autonomous vessels slashing prices to deliver plastic tat made in China straight from the factory to one’s doorstep within 24 hours. The reality is even more absurd. A small US-listed company, Algorhythm Holdings, announced that one of its subsidiaries had dramatically increased freight volumes for clients without expanding headcount. The magic of AI, the magic of markets, the magic of algorithms. The shares soared, while the rest of the sector sank on the back of what remains, at this stage, largely a verbal feat. Most amusing of all, Algorhythm recently pivoted away from its original business: selling karaoke machines.

While Wall Street was sinking, Europe largely contained the damage. Not entirely, with the Stoxx Europe 600 closing down 0.5 per cent at the bell. But Germany’s DAX finished flat, while France’s CAC 40 clung to record levels, buoyed by Michelin, Legrand, EssilorLuxottica, Hermès and Unibail, whose results reassured the market. As it turns out, lacking a sizeable technology sector can sometimes be an advantage.

A handful of earnings releases remain to round off the week, notably Safran and Capgemini this morning. To end on a faintly encouraging microeconomic note, most US results published after the close were well received, particularly in technology, which could lend support to Wall Street. Still, investors will keep an eye on soaring costs, especially in memory chips, once again highlighted overnight by Japan’s Kioxia. The recently listed group surged after results boosted by higher product prices, driven by exploding demand linked to AI applications. Management believes the trend will persist. That is not necessarily good news for industrial customers, nor for consumers who will ultimately bear the consequences.

On the macroeconomic front, Donald Trump, the 47th President of the United States, is reportedly considering cutting tariffs on metal and aluminium products, according to the Financial Times. Meanwhile, European utilities, which had appeared a relative haven amid AI-driven jitters, suffered yesterday. European leaders, notably in Germany and Italy, have floated reform of the EU emissions trading system, a move that could weigh on electricity prices and, by extension, sector earnings. All eyes are now on the publication of US inflation data for January at 2:30pm. In a nervous market, a positive surprise would not go amiss. Economists on average expect annual inflation to slow to 2.5 per cent, both headline and core. Should this gradual easing be confirmed, price pressures would pose less of an obstacle to the interest rate cuts investors hope the Federal Reserve will deliver in the coming months. Any upside surprise would risk intensifying pressure on equities.

Asian markets are ending the week in negative territory in the wake of the Nasdaq’s decline. Japan, India and mainland China are down around 1 per cent. Australia has fallen 1.4 per cent and Hong Kong 2 per cent. South Korea is proving unexpectedly resilient, with the KOSPI hovering near flat: the market is more exposed to the picks and shovels of AI than to the software side, placing it among the relative winners of the moment. Taiwan is closed for a public holiday. Next week, mainland Chinese markets will shut and reopen only on Tuesday 24 February for the Lunar New Year celebrations. The Hong Kong exchange will close for a shorter period, from 17 to 19 February.

Today's Economic Highlights:

On today's agenda: the House Price Index in China; wholesale prices in Germany; the inflation rate in Switzerland; in the Euro Area, preliminary employment change and balance of trade; in the United States, the inflation rate and consumer price index. See the full calendar here.

• GBP / USD: US$1.36
• Gold: US$4,956.46
• Crude Oil (BRENT): US$67.46
• United States 10 years: 4.12%
• BITCOIN: US$66,401

In corporate news:

• Next plc announced a new share buyback program running until March 25, with all repurchased shares to be canceled.
• Schroders and Nuveen confirmed London as their non-US headquarters for at least five years following their merger.
• Rio Tinto shares fell nearly 1% after announcing the resignation of its Chief Legal Officer, Isabelle Deschamps.
• Aviva made a strategic investment in Hyke to accelerate its U.S. expansion and redefine benefits decision support.
• Admiral Group acquired Flock, a digital commercial fleet insurance company, in a deal valued at £80 million.
• British American Tobacco stated that a potential U.S. import block on unregulated vapes could reduce illegal sales by a third, though impacts are unlikely before 2027.
• LSEG announced plans to build a blockchain-friendly digital settlement platform for institutional investors, with the first deliverable expected in 2026.
• Great Portland Estates pre-let 52,293 square feet of office space at The Delft in London to AI firm Quantexa.
• Ashmore Group reported a 64% rise in pre-tax profit for the six months ended December 31, driven by emerging market gains.
• RELX Group announced a £2.25 billion share buyback program and reported strong FY25 results, emphasizing its resilience against AI disruption.
• Alfa Financial appointed Andrew Dickson as its new CFO, succeeding Duncan Macgrath.
• Ryanair is to invest 500 million dollars in Poznan.
• Hundreds of Lufthansa flights have been cancelled owing to a strike by pilots and cabin crew.
• CK Hutchison has threatened AP Moller-Maersk with legal retaliation should the Danish group attempt to force it out of two ports in the Panama Canal zone.
• Ardian and Brookfield Asset Management could acquire Inwit, according to La Lettre.
• Iberdrola is contesting the grid operator’s assertion that one of its solar plants contributed to Spain’s massive blackout in 2025.
• Hensoldt and Helsing are joining forces to develop an autonomous combat aircraft.
• SGS is to acquire Murray-Brown Laboratories.
• Sika is purchasing Turkish adhesives and sealants manufacturer Akkim.
• Knorr-Bremse will invest up to 200 million euros in a campus in India over the next five years.
• Nike is taking steps to revive growth at its Converse brand.
• Constellation Brands has appointed Nicholas Fink as chief executive.
• Palo Alto plans a dual listing in Tel Aviv after completing its acquisition of CyberArk.

See more news from UK listed companies here

Analyst Recommendations:

• Relx Plc: UBS maintains its buy recommendation and reduces the target price from GBX 4570 to GBX 3600.
• Gsk Plc: Jefferies maintains its buy recommendation and raises the target price from GBX 2100 to GBX 2450.
• Lancashire Holdings Limited: UBS maintains its buy recommendation and reduces the target price from GBX 765 to GBX 730.
• Barclays Plc: RBC Capital maintains its outperform rating and raises the target price from GBX 525 to GBX 550.
• Unilever Plc: BNP Paribas maintains its neutral recommendation and raises the target price from GBX 5300 to GBX 5600.
• British American Tobacco P.l.c.: Panmure Liberum maintains its buy recommendation and raises the target price from GBX 4650 to GBX 5000.
• Shell Plc: Baptista Research maintains its underperform recommendation and raises the target price from USD 80 to USD 80.70.
• Deutsche Börse Ag: Barclays maintains its overweight recommendation and raises the target price from EUR 290 to EUR 300.
• Anheuser-Busch Inbev Sa/Nv: Bernstein maintains its outperform recommendation and raises the target price from USD 96 to USD 97.
• Siemens Ag: Oddo BHF maintains its outperform recommendation and raises the target price from EUR 293 to EUR 307.