Wall Street’s main indexes were subdued at the open on Wednesday, following a tech-led selloff in the previous session over surging valuation concerns.
At the opening bell, Wall Street’s main indexes were muted: the Dow Jones Industrial Average rose 0.03 per cent to 47,097.31, the S&P 500 fell 0.03 per cent to 6,769.77, while the Nasdaq Composite rose 0.04 per cent to 23,358.075.
But selling extended into a second day on Wednesday in global markets, leaving those in Seoul and Tokyo around five per cent beneath peaks reached on Tuesday morning.
Falls in technology stock prices from the day before are cause for caution but not panic yet, say brokers and investors who have been riding a runaway market to record highs and some stretched valuations.
Hardest hit have been the biggest winners of a rally that has vaulted chipmaker Nvidia from a niche player to the most valuable company on Earth.
“The selloff appears to be largely positioning-driven, with recent outperforming names taking the worst of the move,” said Jon Withaar, senior portfolio manager at Pictet Asset Management in Singapore.
There was no obvious trigger for the pullback, which began with an unexpectedly negative reaction to strong financial results at Silicon Valley data and artificial intelligence firm Palantir Technologies.
Shares in the market darling finished down nearly eight per cent on Tuesday, and fell a further three per cent in extended trade.
“So people are up to their noses in these AI stocks,” said Herald van der Linde, head of equity strategy for Asia Pacific at HSBC. “But how much further can they go? How much more can they buy? And my belief is that what we’re going to see is a breather … and the breather could come with a rotation.”
On Tuesday, Nvidia shares fell nearly four per cent on Wall Street to trade down about seven per cent from last month’s peak. Meanwhile, suppliers, competitors and firms up and down the AI supply chain came in for a beating in Asia on Wednesday.
“It’s fairly blanket selling in the risk-leverage part of the market, which to us looks like short-term profit-taking,” said Angus McGeoch, Barrenjoey’s head of equities distribution for Asia in Hong Kong.
He said fund managers with an eye on their 2025 results would be quick to duck out of the downturn at this time of year, but are not yet looking for a wholesale exit.
“Obviously (they) don’t want to give up a lot, given the year’s been kind … but if the market looks like it wants to go again, then I don’t think it would take much to get people back involved.”
Fears of an AI bubble
Markets have for months marched past worries over elevated interest rates, stubborn inflation, trade turmoil and a patchy global economy leading to questions about whether the artificial intelligence boom is a bubble waiting to burst.
Tuesday’s two per cent drop in the Nasdaq followed a rise of more than 50 per cent from April lows.
The Current13:32Will the A.I. bubble burst?
There are growing concerns from economists, tech industry insiders and investors that artificial intelligence might be a bubble about to burst. Data centres are a rapidly growing part of the U.S. so big that some observers like MIT fellow Paul Kedrosky believe it’s warping the North American economy. Murad Hemmadi, a reporter with the Logic, argues that we only know about bubbles in hindsight, and until it bursts, we’re going to be waiting to find out.
Wall Street chiefs Ted Pick of Morgan Stanley and David Solomon of Goldman Sachs gave voice to some of the unease in markets and raised the prospect of a pullback at an investment summit in Hong Kong.
Big name investor Michael Burry, who famously predicted the collapse of the U.S. housing bubble which led to the 2008 financial crisis and is depicted in the movie The Big Short, has bet against both Nvidia and Palantir, which has fuelled fears about a bubble.
That move comes just days after Burry posted to X, saying “Sometimes, we see bubbles. Sometimes, there is something to do about it. Sometimes, the only winning move is not to play.“
Moreover, South Korea’s stock exchange cautioned against investing in chipmaker SK Hynix — a routine warning for the stock that had tripled in 12 months but enough to trigger a six per cent two-day fall.
Matthew Haupt, lead portfolio manager at Wilson Asset Management in Sydney, viewed the downturn as investors taking money off the table ahead of Wednesday’s U.S. Supreme Court hearing on the legality of tariffs.
“I’ve been buying today,” he said. “I hope I’m right.”