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US tech stocks sold off on Tuesday as worries mounted over high valuations for artificial intelligence companies and investors braced themselves for earnings later this week from industry titan Nvidia.
The tech-heavy Nasdaq Composite dropped about 1.8 per cent in choppy morning trading, while the broader S&P 500 slipped 1.2 per cent.
Companies at the centre of this year’s AI boom were among the biggest fallers on Wall Street. Chipmaker Nvidia fell 3.5 per cent, while Microsoft, Amazon and Meta all fell about 3 per cent.
Stock markets globally have risen sharply this year, but the rally has stalled as a growing number of investors warn that lofty valuations of leading US AI stocks are becoming detached from the fundamentals.
“There’s no question, we’re getting to a more late-cycle stage [of the market rally],” said Johanna Kyrklund, group chief investment officer at Schroders, pointing to “extended valuations” and a “frothy, somewhat bubble environment”.
“We still have exposure to these stocks,” Kyrklund said, but added that “I wouldn’t advocate a passive exposure to this [AI] space at the moment.”
Investors said Nvidia’s earnings announcement, due on Wednesday, would be a key moment for markets. Peter Thiel’s hedge fund, Thiel Macro, dropped its entire exposure to Nvidia in the third quarter, according to recent filings that gave a snapshot of holdings at the end of September.
“The renewed sell-off in US tech stocks puts even more of a spotlight on the earnings report of AI bellwether Nvidia,” said Jonas Goltermann, deputy chief markets economist at Capital Economics. “It will set the tone for the wider tech sector over the coming few weeks into the year-end.”
The Nasdaq has fallen more than 5 per cent so far in November, putting it on track for its first monthly fall since March, when the scale of Donald Trump’s tariff regime sent shockwaves through markets.
European and Asian stocks also dropped on Tuesday. The tech-heavy South Korean Kospi index fell 3.3 per cent and the Hang Seng in Hong Kong shed 1.7 per cent.
The Stoxx Europe 600 was 2.1 per cent lower by mid-afternoon on Tuesday and Germany’s Dax fell 1.8 per cent.
Investors will also be watching the September US jobs report on Thursday, which was delayed by the longest-ever shutdown of the federal government.
The December Federal Reserve decision is now on a knife edge, with traders divided 50-50 about whether the central bank will cut or hold rates, compared with expectations a month ago that a cut was nearly assured.
Higher rates tend to be negative for quickly growing companies.
The market moves come as Home Depot, the US DIY chain, warned on Tuesday morning that economic uncertainty was weighing on its sales. Its shares slid more than 3 per cent.
Government bonds rallied as investors moved away from riskier assets. The yield on the 10-year US Treasury fell 0.05 percentage points to 4.08 per cent. Yields move inversely to prices.