Global technology stocks have been rattled this week, with AI-related shares leading the decline. The sell-off has reignited debate over whether the artificial intelligence boom is morphing into a bubble. Yet many analysts argue the correction looks more like a short-term adjustment than the start of a broader collapse.
Asia and Wall Street Under Pressure
Asian markets bore the brunt of selling early in the week. Benchmarks in South Korea and Japan fell about 5% from Tuesday highs before trimming losses by the close. In the U.S., the Nasdaq Composite Index dropped 2% on Tuesday but managed a modest 0.4% rebound on Wednesday.
The hardest hit were AI concept stocks, particularly chipmakers that have fueled Nvidia’s (NVDA-US) rise to the top of global market capitalization rankings. Nvidia shares fell nearly 4% Tuesday, retreating about 7% from last month’s peak. Suppliers across Asia also faced heavy selling.
Palantir Earnings Spark Ripple Effect
Investor sentiment soured further after Palantir (PLTR-US) reported earnings that disappointed the market. Shares closed down nearly 8% Tuesday and slipped another 3.5% intraday Wednesday. The reaction triggered a ripple effect across AI-linked names, reinforcing concerns about lofty valuations.
Jon Withaar of Pictet Asset Management said the pullback looked like profit-taking: "The best-performing stocks recently have been hit the hardest; it looks like portfolio reallocation is driving the selling."
Consolidation and Sector Rotation
Some strategists see the correction as a natural pause. Herald van der Linde, Head of Asia Pacific Equity Strategy at HSBC, noted that investors have poured "almost all their money into AI stocks" and suggested the market may now be entering a consolidation phase, potentially accompanied by sector rotation.
Angus McGeoch of Barrenjoey added that institutional investors are adjusting positions quickly to lock in performance before year-end, but he does not see signs of a full retreat. "As soon as the market regains upward momentum, they will be back quickly," he said.
Strong Profits, High Expectations
Despite the volatility, fundamentals remain solid. According to LSEG data, more than 83% of S&P 500 companies reporting Q3 earnings have beaten expectations. Tech giants continue to invest heavily in AI, bolstering long-term prospects but also raising concerns about cyclical spending and earnings visibility.
Seth Hickle of Mindset Wealth Management summed it up: "It’s not that performance has worsened, it’s just that not every metric has been fully met, and in the current market environment, investors have higher expectations."
The Bottom Line
With Nvidia, Palantir, and other AI leaders under pressure, investors are reassessing valuations. Yet most analysts frame the decline as a healthy pullback after an overheated rally, not a harbinger of collapse.
As Morgan Stanley’s Ted Pick and Goldman Sachs’ David Solomon warned in Hong Kong, overheating risks are real. But others, like Matthew Haupt of Wilson Asset Management, see opportunity: "I bought some today, and I hope I was right."
For now, the consensus is clear—AI stocks may be cooling, but the long-term story remains intact.