Tech stocks slide as AI valuation fears intensify
On Friday, major technology stocks plunged again, capping off a brutal week for the sector as investors wrestled with concerns over sky-high valuations and a looming AI bubble. Leading names including Nvidia, Palantir, Meta, AMD and Tesla all posted losses, erasing gains won earlier this year and stoking doubts about whether AI-driven growth can justify current market prices.
Another week of heavy losses
The sell-off stretched beyond the “magnificent seven” to encompass a broad range of chipmakers and software firms. Key data points for the week include:
- Oracle dropped nearly 2% on Friday, closing its weekly decline at around 9%.
- AMD suffered a full 9% loss over the past five trading sessions.
- Broadcom slid more than 5% during the same period.
- Chip designer Nvidia and AI specialist Palantir posted double-digit losses, underscoring traders’ retreat from AI bets.
From hype to hard reality
The heart of the downturn lies in doubts over the sustainability of capital-intensive AI projects. Earlier in the week, remarks by OpenAI CFO Sarah Friar spooked markets when she suggested exploring “an ecosystem of banks, private equity, maybe even governmental” support for OpenAI’s infrastructure expansion. Although CEO Sam Altman quickly clarified that the firm was not seeking government guarantees, the idea of public-private bailouts raised eyebrows.
David Morrison, senior analyst at Trade Nation, put it bluntly: “Market participants aren’t used to seeing leading AI developers get trashed without an obvious catalyst. The sector’s vulnerabilities are now surfacing.”
Corporate debt darkens the mood
Alongside bubble fears, renewed worries over rising debt burdens weighed heavily. Tech giants have tapped record off-balance-sheet borrowing:
- Meta raised $30bn via private credit partner Blue Owl.
- Alphabet launched a $17.5bn US bond sale and a €6.5bn offering in Europe.
- Even Tesla faced pressure, dropping 3.5% despite shareholders approving a potential $1tn stock-based pay package for Elon Musk.
As debt levels climb to fund AI data centres and research, investors fear the impact on balance sheets if growth fails to materialise.
Broader economic uncertainty adds to caution
Beyond tech-specific issues, external economic headwinds have deepened market unease. The ongoing partial US government shutdown has stalled key data releases:
- No fresh nonfarm payroll figures for two consecutive months.
- University of Michigan consumer sentiment surveys near historic lows.
Without clear visibility into the broader economic cycle, traders are pausing to reassess risk—particularly in high-flying sectors where price/earnings multiples exceed long-term norms.
Is this just a rotation or a rout?
Some market watchers view the pullback as a normal sector rotation rather than a systemic collapse. Leah Bennett, chief investment strategist at Concurrent Asset Management, told City A.M. that “AI spending remains robust, and while valuations are stretched, this sell-off could be a healthy consolidation—before the rally resumes.”
Meanwhile, former FCA chair Adair Turner dismissed the notion of an AI-driven banking crisis. “All major financial crises in the last 50 years have been credit-driven. We’re not seeing that in AI yet,” he said. “This correction is about sentiment and stretched multiples, not a collapse in underlying fundamentals.”
Pressure on the “magnificent seven”
The week’s steep declines underscore the fragility of the so-called “magnificent seven” – Nvidia, Meta, Amazon, Apple, Microsoft, Tesla and Alphabet. Each name has contributed heavily to this year’s technology market gains, yet now collectively find their lofty valuations under the microscope. For example:
- Nvidia’s shares have shed more than 15% over the last five days.
- Palantir’s stock plunged double digits as investors question the profitability of enterprise AI.
- Tesla saw significant weakness despite its community’s vote of confidence in Musk’s billion-dollar pay formula.
Navigating a delicate balance
As tech companies continue to pour billions into AI infrastructure, they face a delicate challenge: fostering innovation without overstretching valuations or taking on unsustainable debt. Investors, for their part, must reconcile the sector’s long-term growth prospects with near-term economic realities and rising borrowing costs.
For now, the technology sector remains at a crossroads. Will this be a brief pullback before a renewed AI-driven advance, or the start of a deeper reckoning for inflated tech valuations? Only time—and next week’s corporate earnings and macro readings—will tell.