Tech Stocks Cool Off as AI Optimism Faces Scrutiny Ahead of Fed Speech
Tech stocks took a breather this week as Wall Street’s excitement around AI began to level out and investors recalibrated their portfolios after a strong summer rally.
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The Nasdaq Composite slipped 0.67% on Wednesday following a 1.46% drop on Tuesday.
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The broader S&P 500 dipped 0.24%, marking its fourth straight day of losses.
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Meanwhile, the Dow remained relatively steady.
This pullback signals a moment of reflection for markets after months of gains driven by AI enthusiasm. Highlights include Palantir, which fell 1.1% on Wednesday after a steep 9.35% drop on Tuesday, and Nvidia, down 0.14% following a 3.5% slump earlier.
“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.
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“It’s just a pause that may refresh as investors retrench and rethink how they want to position their tech dollars,” noted Rob Haworth, Senior Investment Strategy Director at U.S. Bank Asset Management Group.
AI Bubble Talk and Mixed Signals from Industry
The AI surge has been partly fueled by booming corporate earnings and big investments from companies like Meta and Microsoft. But recent cautionary remarks—especially from Sam Altman of OpenAI, who warned of overexuberance—coupled with an MIT report showing weak returns from generative AI testing, have rattled investor confidence.
Chipmakers like AMD and Marvell Technology saw nearly 7% declines this week following these developments.
“Altman’s comments spooked some people when he talked about the AI bubble,” said Dan Ives, head of global technology research at Wedbush Securities. “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 heading into Labor Day.”
Big Tech Slows Down, Investors Seek Stability Elsewhere
The week also marked a dip for the Magnificent Seven—Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia, and Tesla—each contributing to the broader market drag. Together, they represent around 33.5% of the S&P 500’s market cap, underscoring how their performance drives overall index movement.
“Valuations have sprinted up,” said Ross Mayfield, investment strategist at Baird. “The fundamentals are good but not keeping pace with the price action.”
Some experts see this as a normal cooling-off period, not a bear market. Veteran investors are shifting toward defensive sectors, preparing for what is historically a weak time of year for stocks.
“We’re neutral on the market right now, but still really bullish for year-end,” said Jay Hatfield, CEO of Infrastructure Capital Advisors.
Even with recent volatility, Palantir remains up 106% year-to-date, though its six-day slide shows how quickly sentiment can change.