AI Stock Sell-Off Blamed on Retail Traders and Meme Stock Frenzy

A significant sell-off in global artificial intelligence shares last week, which impacted the value of his multi-billion-pound fund, has been attributed to a surge of what Stephen Yiu, a prominent London stock picker, described as ‘low-quality money’ and ‘meme stock’ traders. Yiu, whose Blue Whale fund is backed by City figure Peter Hargreaves, stated that selling by small investors, spooked by concerns over AI spending, increasing competition from China, and recent Middle East tensions, led to a 20 percent drop in his fund’s value during July, from £2.9 billion.

The situation was exacerbated by a ‘meme stock trade’ in the AI market, with companies like SpaceX being mentioned. The recent downturn also saw a sharp decline in the value of South Korean chip maker Hynix, a major holding in the Blue Whale fund, which experienced a nearly 33 percent drop in value in July after its financial results failed to meet expectations.

Despite the dip, Yiu expressed continued confidence in Hynix, noting that the sell-off presented an opportunity to increase the fund's stake at a lower price. He stated that the company’s shares had become cheaper while its earnings trajectory remained positive.

The broader AI market saw trading temporarily halted multiple times on South Korea's stock exchange in an effort to curb panic. Wall Street also experienced a downturn, with the Nasdaq falling sharply before recovering towards the end of the week to post a slight gain. Technology giant Microsoft was among the companies that rallied, seeing an 18 percent increase over the week due to strong sales and profit growth.