Tech stocks tumble on concerns over AI spending

Technology shares sold off sharply Tuesday, with the Nasdaq index dropping about 2% as investors questioned whether corporate adoption of artificial intelligence can justify the sector's elevated valuations [1]. Semiconductor stocks including Nvidia and Intel bore the brunt of the decline [1]. The retreat interrupted a 90-day rally that had pushed the tech-focused index to record highs [1]. A primary index of global chip firms also slid, signaling that the anxiety extended beyond U.S. markets [1]. The sell-off comes amid a broader debate over whether the AI boom constitutes a speculative bubble. Some analysts have drawn parallels to the dot-com era of the late 1990s, when the Nasdaq rose 600% between 1995 and its March 2000 peak before losing 78% of its value by October 2002 [3]. Elon Musk's SpaceX, which went public on 12 June, was caught in the downdraft [1]. Shares of the Texas-based aerospace company fell below their $150 opening price early in the session before recovering to $157 [1]. The volatile trading underscored the vulnerability of newly listed firms when sentiment turns [1]. Bank of America analyst Vivek Arya struck an optimistic note, telling clients that "the combination of sticky inflation and strengthening demand will ultimately drive sector forecasts higher" [1]. Arya characterized the current moment as a transition from defending initial returns on investment to addressing physical infrastructure and power constraints [1]. In London, the FTSE 100 managed to stay in positive territory. Danni Hewson, head of financial analysis at AJ Bell, a UK-based investment platform and stockbroker [5], attributed the divergence to "the relative lack of tech stocks on London markets" [1]. The broader economic backdrop has added to investor unease. Since January 2025, the second Trump administration has pursued aggressive tariff policies that contributed to a stock market crash in April 2025 and ongoing volatility [4]. The administration's approach, which includes direct government equity stakes in major corporations, has been described as a departure from traditional free-market orthodoxy [4]. Concerns about an AI bubble have intensified since 2025, with skeptics pointing to a circular flow of investments among leading AI firms that may be artificially inflating stock values [2]. Tuesday's sell-off will test whether upcoming corporate earnings can demonstrate that massive AI investments are generating real profits [1].