Global stock markets have experienced significant declines as concerns mount over the valuation of artificial intelligence (AI) companies. The sell-off, which began in the United States, quickly spread to Asia and Europe, driven by warnings from bank executives that a market correction could be imminent.
In the US, the tech-heavy Nasdaq fell 2% on Tuesday, marking its largest one-day percentage drop in nearly a month. The S&P 500 also closed down over 1%, dragged lower by technology stocks. All of the 'magnificent seven' AI-related shares—including Nvidia, Amazon, Apple, Microsoft, Tesla, Alphabet, and Meta—suffered losses. Palantir, a data analytics firm, slumped almost 8% despite raising its revenue outlook.
The downturn was exacerbated by short-selling activity from investor Michael Burry, who famously predicted the 2008 financial crisis. Burry placed bets against Palantir and Nvidia, prompting criticism from Palantir's CEO Alex Karp, who accused short-sellers of 'trying to call the AI revolution into question.' Asian markets followed suit on Wednesday, with Japan and South Korea dropping over 5% from recent record highs. European markets in the UK, France, and Germany also edged lower.
Bank chiefs from Morgan Stanley, Goldman Sachs, and JP Morgan Chase have warned of a potential market correction. Jamie Dimon, head of JP Morgan, had previously expressed concerns about a crash within the next two years. Deutsche Bank analyst Jim Reid noted a 'growing chorus' discussing the possibility of an equity correction, citing a 'clear risk-off move' as investors worry about lofty tech valuations.
Analysts have also questioned the returns on AI investments, noting that most funding has been concentrated among a few companies like OpenAI and Nvidia, with little evidence of substantial returns. Meanwhile, bitcoin briefly dipped below $100,000 for the first time since June, as investors retreated from riskier assets amid fears about the economic outlook.
