Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., June 22, 2026. REUTERS/Brendan McDermid Photograph: Brendan McDermid/Reuters
Hello, and welcome to TechScape. I’m Blake Montgomery, US tech editor at the Guardian, writing to you after fending off sunburns at the beach. Today, we’re discussing a rocky week for the AI industry’s finances and how California’s proposed billionaire’s tax is changing the political posture of the state’s governor.
AI is facing a financial stress test, but the bubble hasn’t popped
• After the share prices of Alphabet, Samsung, and SK Hynix dropped, a global stock selloff caused markets worldwide to slump.
• The downturn is evidence of just how much the tech sector determines the globe’s economic fate.
• Warnings of a cataclysmic AI-induced crash haven’t come true yet, though.
Last week, the stock market started souring on artificial intelligence. With AI touching just about every major stock, global markets soon suffered a downturn, and that slump has extended into this week.
Is this the beginning of the end for AI, the bubble popping? I don’t think so.
The drop started on 22 June with Alphabet, which saw its worst day on the market in over a year after a slew of high-profile leaders announced departures from Deepmind, Google’s elite AI research unit.
A day later in South Korea, shares of chipmakers Samsung and SK Hynix dropped by double digits. Investors worried about two factors: both companies’ $500bn spending plans and signs of weakening demand for their high-bandwidth memory products from other players in the AI sector.
The two companies make up half of the value of South Korea’s Kospi (Korea Composite Stock Price) Index, much like how seven companies make up 30% of the S&P 500 index in the US – meaning that they can tilt the country’s entire stock market and economy. Their precipitous drops last week triggered a halt on trading.
In the US, the downturn may seem to spell doom, but it represents only a minor decline in comparison with the chip sector’s gains this year. The share price of some chip companies has tripled, or more, since January, driving entire stock markets sharply higher in Asia.
Should the selloff of chip stocks continue, it may pop the ballooning global investment in AI. However, that will require a panic far more severe than what we’ve seen so far. As my colleague Graeme Wearden reports, the Kospi index is up 125% this year, its strongest first half since at least 1990. Though they’ve stumbled of late, Samsung and SK Hynix are the main drivers of that increase. The former’s share price has jumped 183% so far this year, the latter’s 310%. Google is also in a good position, with its stock up 20% year-to-date.
The recent dip has dented but not erased those gains.
Other companies are hurting worse from the selloff despite not being involved in its inception. SpaceX, which owns Elon Musk’s xAI, suffered major losses as a result of the panic, though it doesn’t make chips.
A double-digit dip in SpaceX’s stock price punctured the hype surrounding the company less than two weeks after its stock market debut. Investors seemed to balk at the company’s announcement that it sought to raise $20bn in a bond sale even after raking in more than $85bn through its IPO, sparking concerns over the massive cost of its projects.
As a result of the drop, Musk lost his newly minted status as the world’s first trillionaire, and OpenAI is likely to slow its race to a stock market debut, delaying until next year, the New York Times reported.
Even though they may not herald the end of the AI boom yet, the market moves have fundamental consequences: if you maintain a retirement account in the US, its performance is tied to SpaceX due to the company’s enormous financial heft. The Nasdaq exchange, more tech-heavy than the S&P 500, may also make up a portion of your portfolio, and the tech selloff has weighed it down.
Meanwhile, the actions of chipmakers determine how expensive your everyday electronics are. Apple has blamed its recent price hikes, also announced last week, on the rocketing cost of computer memory. Samsung and SK Hynix have prioritized selling to buyers in the AI industry because profit margins and demand are higher on those sales.
Guardian economics writer Philip Inman wrote: “Every couple of decades, investors will ask themselves how long can the stock market keep climbing.” He points out that the doomsayers of a popping AI bubble are claiming victory even as professional investors find themselves “in that dangerous situation of being hardened to anything that gets in the way of pumping more cash into stock markets”.
It is a predicament that recalls Charles Dickens’s “Best of times, worst of times” opening line. We live in a state of perpetual superlative assessments, of both histrionics and hyperbolic financial enthusiasm.
There are signs a recovery may come soon. Amid the panic, a US chipmaker reported stellar quarterly earnings. Micron, whose stock is up 300% this year, shattered Wall Street’s expectations, with year-over-year revenue quadrupling.
Read more: The AI bubble has further to run despite the looming crash | Phillip Inman
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California’s billionaire tax is already influencing the 2028 US presidential election
• Gavin Newsom called for national tax on the super-wealthy.
• However, Newsom opposes a proposed tax on billionaires’ wealth that will be on the ballot in November in his home state.
• The embrace of a federal wealth tax by Newsom aligns with a notable leftward shift in the political landscape.
Newsom, governor of California and a likely candidate for US president, has been a longtime friend of the tech industry in California, which flourished under his governorship. Now, in the final months of his governorship, Newsom faces a massive test: a proposal for a one time tax on billionaires has made it on to the November ballot. While early polls show the initiative is popular among voters, much of Silicon Valley hates it.
The proposal, called the California Billionaire Tax Act, would levy a one-time 5% tax on residents worth more than $1bn. It has commanded a flurry of attention, landing in a midterm season where wealth inequality ranks among the top concerns of voters nationwide, and it could hit some of the tech world’s most famous figures hard. Already, some tech billionaires, including Google co-founders Sergey Brin and Larry Page, have either threatened to leave California or moved out of the state.
After coming out forcefully against the proposal but failing to keep it off the ballot, Newsom on Friday pushed his own counterproposal: a nationwide minimum tax on anyone with a net worth above $100m.
The verdict is out how his proposal will resonate with voters. Will they see it as Newsom’s way of meeting the moment, amid the success of three progressive candidates in New York who were endorsed by New York City mayor Zohran Mamdani, a Democratic socialist? Seattle and Washington, DC likewise elected Democratic socialist mayors. As the Guardian’s David Smith asked: “Will the Mamdani effect make 2028 the year of the leftwing president?”
Or is it a clever way to seize the narrative with a proposal that will be near impossible to execute while avoiding actually taxing California’s wealthiest residents?
The wider TechScape
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