Nasdaq Outlook: Is the worst over for AI-fuelled tech stocks?

Synopsis

Wall Street’s AI-led rally faced a sharp setback as the Nasdaq recorded its biggest single-day fall since June. Heavy losses in technology stocks reflected growing investor concerns over hyperscaler spending and the returns on artificial intelligence investments.

Wall Street's technology-driven rally came under renewed pressure on Friday, with the Nasdaq Composite recording its biggest single-day decline since June as investors reassessed the massive spending commitments behind the artificial intelligence boom, Reuters reported.

The selloff wiped out a significant portion of the market's recent gains, with semiconductor and technology stocks bearing the brunt of the losses. Intel plunged 29%, while social media company Reddit also slumped 29%. SanDisk, one of the major beneficiaries of the AI-related capital expenditure boom, fell 13%.

S&P 500 Top Gainers

Regeneron Pharmaceuticals927.89(13.33%)

Global Payments96.84(12.97%)

GoDaddy117.24(10.72%)

Mohawk Industries139.41(7.25%)

S&P 500 Top Losers

Intel65.76(-28.58%)

Datadog235.27(-11.50%)

Qualcomm164.79(-11.12%)

The declines followed a difficult week for the biggest technology companies at the centre of the AI infrastructure buildout. Shares of Microsoft, Meta Platforms, Amazon and Google parent Alphabet fell between 1% and 2% on Friday, extending losses recorded earlier in the week.

Concerns are growing over the scale and sustainability of investments by these technology giants. The four so-called hyperscalers have accounted for more than a third of the capital expenditure undertaken by companies currently included in the S&P 500 over the past 12 months, according to Capital Economics. Their share of overall spending is expected to increase further.

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Reuters reported that investors are increasingly questioning whether the enormous investments in artificial intelligence infrastructure will generate sufficient returns and how companies will finance their expansion. The growing reliance on external financing for hyperscalers' combined capital expenditure is adding to concerns about the scale and structure of their spending, Capital Economics economist John Higgins said.

The Nasdaq 100, which tracks large non-financial companies, fell 3.5% on Friday after recovering from steeper intraday losses. The index moved closer to correction territory, commonly defined as a decline of 10% from a recent peak.

The Nasdaq Composite is now down 7.8% from its closing high after recording its worst monthly performance since March 2025, erasing a substantial portion of its gains from the AI-driven rally.

Investors are increasingly distinguishing between companies capable of monetising their AI investments and those that may struggle to generate returns. The uncertainty over who will ultimately benefit financially from the massive investments in artificial intelligence is adding to selling pressure.

The retreat extended beyond technology stocks, indicating a broader reduction in appetite for risk. US Treasury prices advanced, while precious metals came under significant pressure. Silver fell 6% on Friday, taking its losses for 2026 to 31%, while gold declined 3.5%, leaving it down 10% for the year.

However, some market participants viewed the recent declines as a correction following an exceptionally strong rally rather than evidence of a deeper financial problem. Reuters cited Sahak Manuelian, managing director for global equities sales and trading at Wedbush Securities, as saying that the sharp gains across technology stocks had left the sector vulnerable to a significant pullback.

The key question for investors as November begins is whether the change of month will bring renewed buying interest or whether the technology-led selloff will deepen. Investors had moved to reduce their exposure ahead of the weekend amid heightened uncertainty.

With technology valuations, AI capital expenditure and the ability of companies to convert infrastructure investments into sustainable earnings growth under scrutiny, Wall Street faces a fresh test of confidence in the artificial intelligence trade.

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(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

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