Should we be worried about a Nasdaq stock market crash?

The tech sell-off has seen the Nasdaq plunge 3.4% in two days. Now what?

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The Nasdaq Composite Index (NASDAQ: .IXIC) closed 0.7% lower yesterday (overnight Aussie time).

Following Tuesday's 2.8% decline, that sees the tech-heavy index down 3.4% in two trading days.

It's a similar story for the Nasdaq-100 Index (NASDAQ: NDX), which holds 100 of the largest tech companies in the US stock market.

Although bouncing back yesterday, shares in generative artificial intelligence chip maker Nvidia Corporation (NASDAQ: NVDA) are down 10.2% over the last six trading days.

Aussie investors who've been riding the US tech stock boom via the Betashares NASDAQ 100 ETF (ASX: NDQ) will also be feeling the pain.

The ASX-listed exchange-traded fund, which aims to track the performance of the Nasdaq 100, is down 2.7% since Tuesday's close.

So, should investors brace for a crash?

A young man talks tech on his phone while looking at a laptop with a financial graph superimposed across the image.

Image source: Getty Images

Why are tech stocks coming under pressure?

It's worth remembering that the tech-heavy US index has been on an absolute tear over the past year. Despite the past two days' losses, the Nasdaq remains up 24.5% in 12 months, and shares in NDQ are up 24.0% over that same period.

The past two days of selling look to have been spurred by the former and current US presidents, both of whom are still aiming to retake the White House in November.

Donald Trump caused some jitters after saying that the US would not necessarily come to Taiwan's aid if the island nation were invaded by China. Trump pointed to Taiwan's dominance in chip-making, indicating that he believed those should be manufactured domestically.

Joe Biden also caused some ructions, with the Federal government moving to further clamp down on the sales of chip-making equipment to Chinese companies.

According to Dan Coatsworth, an analyst at the London stockbroker AJ Bell (courtesy of The Guardian):

Joe Biden seems intent on making it harder for China to access foreign chip technology, while Donald Trump has upset US relations with global semiconductor hub Taiwan.

Geopolitical tensions have acted as a stark reminder to investors that even the hottest of all investment trends can meet bumps in the road.

Is the Nasdaq at risk of crashing?

To get a better grasp of the risks of a potential Nasdaq stock market crash, we turn to the experts.

Societe General's bearish Albert Edwards said (quoted by The Australian Financial Review):

I tend to worry about many things but, to be fair, there has been no shortage of things to worry about.

Suffice to say that a simple reversal in price momentum in an asset class that has risen sharply for a number of years (sucking in huge quantities of loose money) is often sufficient in itself to cause prices to crash as investors rush to the exits.

But David Harold, an analyst at Jon Peddie Research, has a more optimistic take on the recent tech sell-off.

"This market response is temporary as the underlying factors influencing these markets remain unchanged, and AI will continue to push chip demand," Harold said.

Nasdaq futures have climbed back into the green at the time of writing, indicating modest gains could be back on the table tomorrow.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended BetaShares Nasdaq 100 ETF and Nvidia. The Motley Fool Australia has positions in and has recommended BetaShares Nasdaq 100 ETF. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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