As soaring AI stocks take a turn, investors say not to panic yet

Wall Street's major indexes fell at the open Wednesday after selling off in the previous session on growing concerns about stock prices.

Wall Street's major indexes were muted at the open, with the Dow Jones Industrial Average up 0.03 percent at 47,097.31, the S&P 500 down 0.03 percent at 6,769.77 and the Nasdaq Composite up 0.04 percent at 23,358.075.

But global selling continued on Wednesday, leaving sales in Seoul and Tokyo about five percent below peaks reached Tuesday morning.

The drop in tech stock prices overnight is a reason for caution but not yet panic, said brokers and investors who rode to record highs and some lofty valuations in a soaring market.

The biggest winners have been hit hardest in a rally that has transformed chipmaker Nvidia from a niche player into the most valuable company on Earth.

“The sell-off appears to be largely driven by positioning, with recent outperforming stocks experiencing the bulk of the move,” said John Vitaar, senior portfolio manager at Pictet Asset Management in Singapore.

There was no obvious reason for the pullback, which began with an unexpectedly negative reaction to the strong financial results of Silicon Valley data and artificial intelligence company Palantir Technologies.

Shares of the market darling fell nearly eight percent on Tuesday and fell another three percent in extended trading.

“So people are up to their necks in these AI stocks,” said Gerald van der Linde, head of Asia-Pacific equity strategy at HSBC. “But how far can they go? How much more can they buy? And I believe that what we will see is a respite… and a respite can come with the rotation.”

Nvidia shares fell nearly four percent on Wall Street on Tuesday, down about seven percent from their peak last month. Meanwhile, suppliers, competitors and firms in the AI ​​supply chain took a beating in Asia on Wednesday.

“This is quite a broad sell-off in the risk-leveraged part of the market, which to us looks like short-term profit-taking,” said Angus McGeoch, Barrenjoey's head of Asia equity allocation in Hong Kong.

He said fund managers targeting 2025 performance would quickly be able to avoid a downturn at this time of year, but were not looking for a wholesale exit just yet.

“Obviously (they) don't want to give up a lot given it's been a good year… but if the market looks like it wants to get back on track, then I don't think it's going to take long to get people back in.”

Fears of an AI bubble

Markets have been battling concerns over higher interest rates, persistent inflation, trade turmoil and a choppy global economy for months, leading to questions about whether an artificial intelligence boom is possible. a bubble waiting to burst.

The Nasdaq's 2% drop on Tuesday followed a rise of more than 50% from its April lows.

Wall Street executives Ted Peake of Morgan Stanley and David Solomon of Goldman Sachs expressed some concerns in markets and raised the prospect of a pullback at an investment summit in Hong Kong.

Famed investor Michael Burry, who famously predicted the collapse of the US housing bubble that led to the 2008 financial crisis, is featured in the film. Big Short Tradehas bet against Nvidia and Palantirwhich increased concerns about a bubble.

The move came just days after Berry. sent to Xsaying “Sometimes we see bubbles. Sometimes there is something you can do about it. Sometimes the only winning move is not to play.“

What's more, South Korea's stock exchange warned against investing in chipmaker SK Hynix, a common warning for stocks that have tripled in 12 months but enough to trigger a six percent two-day drop.

Matthew Haupt, lead portfolio manager at Wilson Asset Management in Sydney, sees the downturn as investors taking money off the table ahead of a US Supreme Court hearing on Wednesday on the legality of the tariffs.

“I bought today,” he said. “I hope I'm right.”