AI Bubble Worries are Driving Markets Down

Picture Credit: by Pennies to Save

Technology stocks endured a difficult week as mounting concerns over valuations and the sustainability of the artificial intelligence boom weighed heavily on investor sentiment. The Nasdaq Composite slipped 0.21% on Friday, capping a 3.04% weekly decline, its worst performance since April. The S&P 500 managed a modest 0.13% gain on Friday but still ended the week down 1.63%, snapping a three‑week winning streak. Meanwhile, the Dow Jones Industrial Average closed 75 points higher after recovering from a sharp intraday drop.

Markets initially plunged before bouncing back late Friday as investors bought into the dip, encouraged by hopes that the prolonged U.S. government shutdown, now the longest in history, might soon be resolved. Despite the rebound, volatility remained elevated. The CBOE Volatility Index spiked as much as 16% earlier in the week, while broader sentiment indicators pointed to extreme fear.

The AI rally, which has fueled much of the market’s recent strength, showed signs of fatigue. Nvidia and Palantir, two prominent beneficiaries of the AI trade, fell 7.1% and 11.2% respectively, marking their worst weeks since April. Oracle also tumbled nearly 9%, erasing much of the gains it had accumulated following its September partnership announcement with OpenAI.

Picture Credit: by Silicon Flash

Investor unease was compounded by warnings from major Wall Street banks about stretched valuations and rising expectations for corporate earnings. Concerns surrounding the financial feasibility of massive AI infrastructure investments added further uncertainty.

Beyond technology, the government shutdown continued to cast a shadow over economic confidence. Consumer sentiment dropped to its lowest level since mid‑2022, reflecting growing anxiety about household finances. While volatility has picked up, some strategists argue that any pullback in the S&P 500 could present opportunities for long‑term investors.