After the shockwaves triggered by revelations over Jensen Huang’s relationship with an alleged spy yesterday, today it was the turn of Softbank to add to AI bubble anxieties.

The Japanese investment firm, led by billionaire founder Masayoshi Son, surprised markets after posting a £5.3bn third quarter loss (analysts were expecting a profit).

That was caused in large part by a multi-billion write down in its data centre projects, including on payments it made to secure power generation equipment for a huge development in the US, adding to fears the firm moved too fast in its scramble to gain an edge in the AI race.

The company would now conduct “a thorough reassessment” of its data centre strategy, including in procurement, finance chief Yoshimitso Goto said, sheepishly.

Softbank is not the only tech investor feeling the heat. London-listed technology investment trusts, which had been the standout performers in the first half of the year, have been rapidly erasing their gains since the start of the third quarter.

Manchester & London Investment Trust, for whom US chip firms Nvidia, Micron and Broadcom account for about a third of its portfolio, has lost nearly a quarter of its value since last month. 

Allianz Technology Trust is down around 23 per cent, while Polar Capital Technology Trust is down about 21 per cent.

If you’d bet the house on semiconductors at the start of the year, at present you’d be hard-pressed to have found a worse strategy. As I pointed out yesterday, more than three quarters of the FTSE 350 have outperformed Nvidia’s stock since January.

If investors are exiting tech at breakneck speed, where are they headed? Defensive stocks – ones which tend to deliver stable returns during choppy periods in the business cycle – have once again come into vogue.

An MSCI index of global consumer staples stocks saw its biggest monthly gain in nearly three decades in October of 10.6 per cent, the FT reports, while healthcare stocks saw their second-biggest monthly gain of the century at 9.8 per cent, eclipsed only by Covid.

“That is not something many may have predicted at the start of the year. But rising interest rates and bond yields work against stocks like Nvidia where a lot of the value lies in future profits and cash flows, while nagging doubts over the funding of, and returns from, the massive investment in AI continue to linger, and the company still sports a weighty valuation,” Russ Mould, investment director at AJ Bell, told City AM.

“There has been a worldwide shift toward stodgier sectors in the second half of the year, notably healthcare and consumer staples, and away from tech, so it will be interesting to see if that trend continues, or whether much lower share prices – and thus valuations – in some instances tempt some investors to buy on the dip.”