Stay informed with free updates
Simply sign up to the US equities myFT Digest — delivered directly to your inbox.
US stocks dropped on Tuesday as jitters over highly elevated valuations for many artificial intelligence companies intensified and top Wall Street executives said markets were vulnerable to a pullback.
The blue-chip S&P 500 was down 1 per cent by the afternoon in New York, while the tech-heavy Nasdaq Composite fell 1.8 per cent.
Major cryptocurrencies were swept up in the sell-off, with bitcoin briefly falling below $100,000 a token for the first time since June.
US stocks have climbed to record highs in recent months, with AI companies accounting for most of the market’s gains. Yet worries about elevated valuations, and how long it will take for Big Tech’s huge investments in data centres to generate returns, are becoming more pronounced.
Emmanuel Cau, head of European equities strategy at Barclays, said: “There is clearly some fatigue after a very strong run and lot of catalysts having played out already, on top of concerns about an AI bubble and [the] US government shutdown.”
Max Kettner, head of multi-asset strategy at HSBC, said investors had also been “spooked” after senior US bank executives said valuations had become stretched in some stocks and markets remained vulnerable to a significant wobble.
Goldman Sachs chief executive David Solomon said at a conference in Hong Kong on Tuesday: “When you have these cycles, things can run for a period of time. But there are things that will change sentiment and will create drawdowns, or change the perspective on the growth trajectory, and none of us are smart enough to see them until they actually occur.”
Morgan Stanley CEO Ted Pick on Tuesday also noted that while markets remained sanguine, “we should also welcome the possibility that there would be drawdowns, 10 per cent to 15 per cent drawdowns that are not driven by some sort of macro cliff effect”.
Tuesday’s declines came after several large tech stocks that had been propelled higher this year by investors’ hopes around AI beating analysts’ expectations but were nevertheless punished by investors.
Peter Thiel’s defence group Palantir, which boasts the highest valuation relative to its profits of any S&P 500 company, was the market’s worst performer, down as much as 10 per cent before paring some losses.
Palantir late on Monday lifted its 2025 revenue guidance as its executives cheered “the number of opportunities” presented by America’s involvement in conflicts around the world.
However, the disclosure of a $912mn bet against Palantir’s shares by famed hedge fund manager Michael Burry appeared to unnerve some of the investors who have driven the stock higher this year.
Ridesharing group Uber slipped 6 per cent on Tuesday even after it said late on Monday that sales rose by a fifth year-on-year to $13.5bn.
Tuesday’s sell-off was not confined to tech stocks. Norwegian Cruise Line fell 15 per cent after it reported lower than expected revenues, while energy group Marathon Petroleum slipped 5 per cent after missing analysts’ forecasts of earnings per share.
