AI and tech stocks declined this week as Wall Street’s summer rally lost momentum, with the Nasdaq falling 0.67% on Wednesday after a 1.46% drop on Tuesday. The pullback reflects growing investor caution about AI valuations and comes ahead of Federal Reserve Chair Jerome Powell’s closely watched speech at Jackson Hole on Friday, which could signal the central bank’s rate-cutting plans.
What you should know: Major AI and tech stocks are experiencing their first significant correction after months of gains driven by artificial intelligence enthusiasm.
- The Nasdaq was on track to snap back-to-back weeks of gains, while the S&P 500 posted its fourth consecutive day of losses.
- Palantir, an AI-focused data analytics company, fell 1.1% on Wednesday after dropping 9.35% on Tuesday, while Nvidia edged down 0.14% following a 3.5% decline the previous day.
- All seven “Magnificent Seven” tech stocks—Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia, and Tesla—fell on both Tuesday and Wednesday.
The big picture: Investor sentiment around AI investments is shifting as concerns mount about whether the current market enthusiasm has outpaced underlying fundamentals.
- “Investors rotated out of high-momentum tech stocks, reflecting renewed jitters over the sustainability of the AI trade,” said Ulrike Hoffmann-Buchardi, head of global equities at UBS, a global investment bank.
- The Magnificent Seven now represent 33.5% of the S&P 500’s total market value, giving them outsized influence on broader market performance.
What triggered the pullback: Recent comments from OpenAI CEO Sam Altman and new research questioning AI returns appear to be dampening investor confidence.
- “Are we in a phase where investors as a whole are overexcited about AI? My opinion is yes,” Altman told reporters last week, according to The Verge.
- MIT researchers published a report Monday showing that most companies testing generative AI tools are seeing zero returns.
- AI chip companies Advanced Micro Devices and Marvell Technology were each down almost 7% for the week.
What they’re saying: Market analysts view the decline as a natural pause rather than the end of the AI boom.
- “It’s just a pause that may refresh as investors retrench and rethink how they want to position their tech dollars,” said Rob Haworth, senior investment strategy director at US Bank Asset Management Group.
- “Tech stocks have had a massive run, so I think it’s just typical that investors are starting to take some chips off the table going into Labor Day,” said Dan Ives, head of global technology research at Wedbush Securities.
Key context: The selloff comes during historically weak market conditions and ahead of Powell’s Jackson Hole speech.
- About 70% of S&P 500 stocks closed higher on Tuesday, with investors rotating into defensive sectors like consumer staples, utilities, and real estate.
- Nvidia had surged 93% since its early April low point, while Palantir remains up 106% year-to-date despite recent declines.
- “We’ve been expecting this type of a pullback,” said Jay Hatfield, CEO at Infrastructure Capital Advisors, noting the start of a historically weak season for stocks.
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