Tech stocks sold off on Wednesday, weighed down by comments from Republican presidential nominee Donald Trump and lukewarm forward guidance issued by European chip-equipment maker ASML Holding N.V. (NASDAQ:ASML). Tech venture capitalist and Deepwater Asset Management Managing Partner Gene Munster weighed in on the implications of the geopolitical rhetoric from either side of the aisle for the sector in general and artificial intelligence technology in particular.
What Happened: The Nasdaq Composite Index ended Wednesday's session down 2.5% and the Nasdaq 100, comprising 100 of the biggest non-financial tech stocks, fell a steeper 2.94%. The sharp plunge has been triggered by a vortex of geopolitical comments from Trump and President Joe Biden, said Munster in a post on X, formerly Twitter.
"Trump's comments are part threat and part reality," Munster said. Trump threatened to withdraw support for Taiwan, he said, adding that the former president has a history of making threats that he does not follow through on. Munster pointed to the fact that Trump threatened in 2018 about the U.S. exiting NATO, which never materialized.
But in reality, Trump wants to continue supporting Taiwan and "earn a political win around getting a U.S. ally to 'pay for defense,'" Munster said. He noted that since 2017 NATO Europe and Canada spending has increased by 28% versus the 20% that the U.S. has been doing.
Regarding Biden's comments, Munster noted that the White House wanted to further restrict advanced technology used in building AI to enter China. While companies like ASML were mentioned, greater restrictions could have a negative impact on Nvidia, which could hamper the AI trade in the near term.
Why It's Important: The tech entrepreneur sees politics and regulation slowing down AI's progress in the near term, i.e. over the next 1-3 years, by making it more expensive to access the underlying hardware. He, however, sees the technology weathering the headwind.
"This too will pass given the power of AI will eventually surpass the power of politics. In the end, the substance of AI will exceed the hype," he added.
The rally seen in the market since the start of 2023 has been fueled by the hype around AI and its long-term potential. Most analysts, including Munster, believe the AI bubble will last at least for 3-5 years.
The Global X Artificial Intelligence & Technology ETF (NASDAQ:AIQ) ended Wednesday's session down 3.33% to $35.72, according to Benzinga Pro data.
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