Nasdaq sell-off deepens amid AI stock concerns

Stocks fell on Tuesday as investor concerns regarding artificial intelligence valuations impacted major indices.

The S&P 500 declined by 1.2%, and the Nasdaq Composite dropped by 1.9%, while the Dow Jones Industrial Average lost 304 points, equating to a 0.6% decrease.Palantir shares dropped 9%, despite the company’s strong third-quarter performance and positive forecasts attributed to its AI sector growth. The stock has surged over 150% this year, yet trades at over 200 times its forward earnings, leading investors to question whether such valuations can be sustained.

Other tech stocks also faced declines, including Oracle and AMD, which saw drops of 4% and more than 3%, respectively.

Gains in AI stocks have inflated the S&P 500’s price-earnings ratio above 23, raising concerns about stock valuations. Ameriprise market strategist Anthony Saglimbene highlighted potential risks, stating that investors are questioning if future profit growth will support high capital expenditures.

Market Outlook

Comments from executives at Goldman Sachs and Morgan Stanley further added to market worries.

Both firms predicted potential market pullbacks, with drawdowns of 10% to 20% possible within the next two years. Saglimbene noted a narrow market breadth in recent months, suggesting limited alternatives if a downturn occurs in the tech sector.