US stocks experienced a significant decline on Tuesday, driven by growing concerns over inflated valuations in the artificial intelligence sector and warnings from major Wall Street executives about the market’s susceptibility to a downturn. The S&P 500 concluded the day 1.2 percent lower, while the Nasdaq Composite, particularly sensitive to technology stocks, fell by 2 percent.
This downturn also impacted the cryptocurrency market, with bitcoin briefly dipping below $100,000 for the first time since June. Recently, US equities had reached record highs, largely fueled by AI companies, but investors are now increasingly wary of the sustainability of these valuations and the timeline for returns on substantial investments in data centers by major technology firms.
Emmanuel Cau, who leads European equities strategy at Barclays, noted a sense of fatigue following a robust market performance and highlighted concerns about a potential AI bubble alongside the possibility of a US government shutdown.
Max Kettner, head of multi-asset strategy at HSBC, echoed these sentiments, stating that investors were rattled by comments from senior US bank executives regarding overextended valuations in certain stocks. Goldman Sachs CEO David Solomon, speaking at a conference in Hong Kong, remarked on the cyclical nature of markets and the unpredictability of factors that could alter market sentiment or trigger declines.
Morgan Stanley CEO Ted Pick also warned that while current market conditions appear stable, investors should be prepared for possible drawdowns of 10 to 15 percent that aren’t necessarily linked to broader economic crises.
The sell-off followed a year where several large technology stocks had surged on optimistic predictions related to AI. However, many of these stocks faced corrections on Tuesday. Notably, Palantir, a defense firm known for its extraordinary valuation compared to profits, saw its shares plummet by as much as 10 percent before recovering some losses. This decline occurred despite the company raising its revenue forecast for 2025, which was buoyed by potential opportunities linked to US military engagements globally. However, investor confidence was shaken following news that prominent hedge fund manager Michael Burry had bet against Palantir’s stock, raising concerns among bullish investors.
Other tech companies also faced declines; ridesharing giant Uber slipped 5 percent despite reporting a robust 20 percent year-on-year sales increase to $13.5 billion. The losses extended beyond the tech sector, with Norwegian Cruise Line’s shares plunging 15 percent following disappointing revenue figures and Marathon Petroleum’s stock dropping 6 percent after failing to meet earnings expectations.
Overall, the combination of market excesses, evolving investor sentiment, and mixed performance across various sectors generated a challenging trading environment on Tuesday.
