The artificial intelligence boom that has propelled markets to record highs is showing signs of cracking. Investors fled high-flying technology shares on Thursday, sparking worries that the AI bubble may finally be bursting. This tech-led sell-off dragged the major averages deep into the red.
Just How Deep Did the Tech Sell-Off Cut?
The Nasdaq Composite, heavy with tech giants, plunged 2.5%, marking its third consecutive day of losses. The pullback was led by AI darlings that have dominated 2025, including heavyweights Nvidia, Broadcom, and Alphabet.
The S&P 500 shed 1.6%, with notable declines in communication services and information technology. The Dow Jones Industrial Average lost 619 points, or 1.3%, retreating from its record highs seen in the previous session.
‘A Healthy Consolidation’ or a Bursting Bubble?
Despite the alarming drop, some analysts remain unphased. “It seems like a natural consolidation to me,” Ron Albahary, chief investment officer at Laird Norton Wealth Management, said to CNBC.
He called the day’s pullback “healthy”. This suggests the sell-off is a normal breather after a powerful rally, rather than the start of a larger collapse.
Will AI Spending Pay Off for the Broader Economy?
Albahary’s optimism stems from a longer-term view. “Part of the, I think, AI narrative is that at some point all this [capital expenditure] is going to actually manifest itself”, he said.
“The benefits of it will manifest itself within the broader economy…”. He suggests that if sectors like health care and manufacturing start to benefit, it “supports the overarching narrative, which is AI capex is going to enhance productivity across the board”.
Why Interest Rate Jitters Are Adding to the Sell-Off
Technology valuations were not the only concern weighing on equities. A sudden pessimism in the interest rate outlook also soured the mood.
According to the CME FedWatch Tool, markets are now pricing in just a 49% chance that the Federal Reserve will cut its benchmark rate in December. This marks a sharp drop from the 62.9% likelihood priced in only a day ago.
Flying Blind: The Government Shutdown’s Lingering Shadow
This rate anxiety comes as the US government finally reopens after a record-setting, six-week shutdown. The extended stoppage ended Wednesday evening.
It meant the central bank was ‘flying blind’ without key economic reports, as crucial data like the October jobs report and inflation figures were missed. White House press secretary Karoline Leavitt said on Wednesday that these reports may never be released.
Expect ‘Market Chop’ as Data Drips In
Economists are now scrambling to assess the shutdown’s impact, which some fear could lower fourth-quarter growth by up to 2 percentage points.
“We would not be surprised to see some market chop over the coming weeks as the government gears and economic data presses get turning again,” said Carol Schleif, chief market strategist at BMO Private Wealth.
This uncertainty is fuelling a rotation, with some investors fleeing risk-on tech assets. This caution persists even as the Dow closed above 48,000 for the first time just a day prior, highlighting the growing divide in the market.
Originally published on IBTimes UK
