Big-cap US tech came into this week squarely on the back foot having traded meaningfully lower during a positioning shakeout that found small-caps outperforming by the largest margin in decades.

The question was whether the burgeoning tech selloff could continue, or whether the Nasdaq 100’s second-worst week of the year was merely an opportunity to get a slight discount on the market leadership ahead of mega-cap earnings.

With five of the vaunted “Magnificent 7” yet to report, and Nvidia’s earnings over a month away, the jury’s still out, but I’d be remiss not to flag the mid-week rout which pushed the septet down nearly 6% in the worst selloff of 2024 for the group.

As the figure shows, the Magnificent 7, as a group, has seen three routs in less than two weeks.

Part of the problem Wednesday was obviously Tesla, which dove double-digits after the company officially pushed back the debut date for Elon Musk’s “robotaxi” and undershot analysts’ profit expectations for a fourth straight quarter. Alphabet stumbled hard too, even as the company’s results, delivered alongside Tesla’s on Tuesday afternoon, were generally fine.

Although I can’t “confirm” that Musk’s “X” poll about plowing $5 billion of Tesla’s cash into his own AI venture contributed to the post-earnings swoon, allow me to gently suggest that may not be the kind of “organic” growth shareholders are looking for.

Whatever the case, it was a rough ride for the shares which, you’re reminded, very recently logged 11 consecutive daily gains.

As for the AI angle, on July 21 I wondered if markets might soon become impatient with the lag time between AI spend and revenue recognition. If Wednesday’s price action was any indication, the answer’s “yes.”

Of course, some of this is just the market grappling with stretched valuations and the run-up in tech shares more generally.

JonesTrading’s Mike O’Rourke captured it well. “Google’s numbers were incrementally better than estimates but there was little tangible color on AI monetization [which] is not enough for shares up 30% YTD and 50% over the past year,” he said, before turning to Tesla, which is “an $800 billion company in an industry that is out of favor while facing massive competition from China and trad[ing] 100x forward earnings,” leaving the shares “disconnected from any type of traditional valuation methodology.” That disconnect, O’Rourke went on, “means anything can happen.”

Yes, “anything can happen.” For example, Albert Edwards might be right this time.