Nasdaq drops for 2nd day as AI jitters rattle tech investors

Tech stocks led declines on Wall Street, with worries about AI spurring debates about its future. The Nasdaq Composite dropped 2.2% over the last two days, the worst two-day fall since August 1st.

The semiconductor index was down 1.4% , while the information technology sector was the second biggest decliner in the S&P 500, sliding 1% on Wednesday.

Market participants attributed the selloff to a range of factors including a technical pullback after driving much of the stock market’s recovery in the weeks after the April 2nd “Liberation Day.”

Aside from AI concerns, analysts also cited deepening fears of government interference with companies, as the Trump administration looked into taking equity stakes in chip companies such as Intel in exchange for grants under the CHIPS Act.

“I think it’s more likely this is an overstretched pause than the beginning of a new rotation. The most notable trade midday was a seller of 20k+ Dec 100 puts as SPX rebounded sharply, suggesting investors are taking advantage of the pullback via selling puts rather than signaling a wholesale shift. For now, flows point to taking advantage of the sell-off as opposed to a clear reallocation of capital into new sectors.”

“Tech stocks are sliding as investors pare back risk ahead of the Fed’s Jackson Hole meeting, with traders reluctant to chase valuations higher into a Powell speech that will likely fall short of promising a September rate cut.”

“Fresh concerns over the durability of the AI boom, after an MIT study highlighted weak corporate returns and comments from OpenAI’s Sam Altman cited excess buildout in the space, have added to the pressure.”

“If it’s the start of a rotation, it’s less of a ‘growth shifting to value’ or ‘smalls caps over mega caps’ shift and more of a ‘classic defensive’ posturing around economic weakness: bonds, gold, healthcare, and consumer staples are leading the way. If there was a time of the year for a pullback, it’s now: over the past 10- and 20-years, the S&P 500 has averaged losses of -1.7% and -1.2%, respectively, during the August to October window.”

“Technology in general is up 40% from its April lows, and the group clearly got ahead of itself. Also, if there’s anything to the market consensus that we’ll see a Fed rate cut, then there will be room for other things to work as well – and there are 493 other stocks in the S&P 500 that are lagging the Mag 7 right now. So I think there’s a bit of a rotation.”

“I don’t know how long it will last, but if it does keep going, well, August and September (are) the weak period seasonally in which it could do so. Also, there are some people who are beginning to question the pace at which we need to be chasing AI capital spending. If you put all this together: when technology stocks take a breather, this is what it looks like. Nvidia and other blue chips in the group are seeing relatively steady drawdowns, but things on the speculative edge are clearly seeing more selling pressure. Palantir has gone from trading at 200 times sales to 150 times its sales, for instance.”

“Tuesday’ s U.S. technology stock swoon and its continuation today looks like multiple compression meeting a little margin math, but the timing makes it hard to ignore the new elephant in the server room. Names that had been sprinting on AI dreams pulled back hard, with Nvidia, AMD, and Palantir Technologies among the drags.”

“DeepSeek’s update landed on Tuesday represents a serious cocktail of capability and availability and traders well remember the original harsh tech-market pullback DeepSeek caused when it was first broadly recognized in January of this year.”

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, BROOKFIELD, WISCONSIN:

“When you go from rally to rout, it shows how vulnerable the names were to even a scent of bad news. It could have been (Sam)Altman’s valuation warning and then Meta restructuring its AI division threw fuel on the fire.”

SETH HICKLE, PORTFOLIO MANAGER, MINDSET WEALTH MANAGEMENT, INDIANAPOLIS:

“I think we are starting to see a little bit of rotation. It’s always healthy to see a little bit of a pullback to that way, the markets can kind of get re-oriented.”