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US tech stocks sold off as warnings that the hype surrounding artificial intelligence could be overdone hit some of the year’s best-performing shares.
Nvidia, the chips group that has surged to become the world’s first $4tn company on the back of AI, fell 3.5 per cent on Tuesday, while software group Palantir dropped 9.4 per cent and chip designer Arm shed 5 per cent.
The tech-heavy Nasdaq Composite closed down 1.4 per cent, the biggest one-day drop for the index since August 1. The blue-chip S&P 500 fell 0.7 per cent.
Asian markets followed Wall Street lower, with Japan’s Nikkei 225 index opening down 1.3 per cent, South Korea’s Kospi falling 1.8 per cent and Hong Kong’s Hang Seng benchmark retreating 0.7 per cent.
Traders pinned some of the decline on a critical report on Monday authored by a branch of the Massachusetts Institute of Technology.
Researchers said “95 per cent of organisations are getting zero return” from their investments in generative AI, the technology that has sent US stocks soaring to record highs in recent months.
“The story is spooking people,” said one trader close to a multibillion-dollar US tech fund.
“Just 5 per cent of integrated AI pilots are extracting millions in value, while the vast majority remain stuck with no measurable [profit and loss] impact,” the MIT report said.
The stock drop also came days after OpenAI chief executive Sam Altman signalled an AI bubble might be forming. “Are investors over excited? My opinion is yes,” Altman said late last week.
He said: “I do think some investors are likely to lose a lot of money, and I don’t want to minimise that, that sucks. There will be periods of irrational exuberance. But on the whole the value for society will be huge.”
The fresh jolt of tech jitters comes about seven months after Chinese AI group DeepSeek sparked a brief bout of market tumult when it said it made advances apparently achieved with far less computing power than US rivals.
Tuesday’s declines were driven by drops for some of this year’s best-performing stocks. Oracle and Advanced Micro Devices, two of the five top-performing large-cap stocks since mid-May, fell 5.9 per cent and 5.4 per cent, respectively. AppLovin, which serves up advertisements within apps, lost 5.9 per cent.
Bitcoin shed 2.7 per cent, driving falls in stocks linked to the cryptocurrency such as Strategy and Metaplanet.
“The market has been on fire — and today you saw a rotation out of a lot of the very hot, high-momentum names,” said Jacob Sonnenberg, a portfolio manager at Irving Investors with a focus on tech.
DeepSeek’s announcement in January that surprised the market about a high-performing new model raised questions about American companies’ dominance of AI and the level of demand for their chips. Although stocks recovered, the episode underscored investors’ sensitivity to bad news about the technology.
Defensive parts of the market including consumer staples, utilities and real estate rose as tech slipped. About seven in 10 S&P 500 stocks ended the session higher.
Tech has driven the market’s recent run higher. The S&P 500 information and technology sub-index has risen 14 per cent since mid-May, led by AI-linked companies such as Oracle and AMD.
Additional reporting by George Hammond in San Francisco and William Sandlund in Hong Kong
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