Key Takeaways
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- Nasdaq fell 3%, marking its worst week since April, as investor confidence in the AI boom waned.
- Nvidia (-7%), Palantir (-11%), and Oracle (-9%) led declines amid fears of AI overspending and valuation fatigue.
- Michael Burry bet against Nvidia and Palantir, amplifying bearish sentiment.
- A government shutdown, weak consumer sentiment, and rising layoffs added macro pressure.
- Fed rate-cut odds for December rose to 66%, as Treasury yields eased slightly.
AI Mania Meets Market Fatigue
Wall Street’s AI-fueled optimism showed cracks this week.
The Nasdaq Composite suffered its sharpest weekly drop since Trump’s “Liberation Day” tariff plan in April, falling 3% as investors began questioning the return on massive AI investments.
Stocks that had been AI darlings reversed course. Palantir plunged 11%, Nvidia slid 7%, and Oracle lost 9%. Even giants like Meta and Microsoft fell around 4%, while only Amazon managed a modest gain.
“Valuations are stretched,” said Jack Ablin of Cresset Capital. “Good news doesn’t move the needle anymore.”
Investor Concerns Mount
After a year of relentless AI enthusiasm, the market is facing a reality check.
Tech giants are expected to spend $400 billion on AI infrastructure this year, and even more in 2026. Investors are starting to ask: where are the profits?
“People continue to question—how are you going to monetize that?” said Thomas Martin of Globalt Investments.
Adding to nerves, Michael Burry revealed short positions against Nvidia and Palantir, signaling skepticism from one of Wall Street’s most famous contrarians.
Macro Headwinds Add Pressure
The broader market struggled under macro uncertainty:
- A government shutdown entered its second month, halting economic data releases like the Labor Department’s jobs report.
- Consumer sentiment fell to 50.3, its lowest since mid-2022, according to the University of Michigan.
- Corporate layoffs nearly tripled in October, per Challenger, Gray & Christmas.
These signals forced investors to confront the fragility of U.S. growth.
Mixed Economic Signals
Not all data were negative.
Private payrolls from ADP came in stronger than expected, and a services activity index reached its highest since February. But the mixed signals led to volatility in Treasury yields, with the 10-year yield ending nearly flat at 4.09%.
Futures markets now price in a two-thirds chance of a Fed rate cut in December, reflecting growing belief that the economy is cooling.
The Bigger Picture
While the AI buildout remains a long-term growth driver, short-term valuations and spending discipline are under scrutiny.
As Goldman Sachs CEO David Solomon warned this week:
“A 10% to 20% drawdown in equity markets in the next year or two is a meaningful possibility.”
AI leaders like Microsoft and Alphabet may have deep cash reserves, but investors are now demanding proof of profitability, not just promises of potential.
