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Global Tech Stocks Tumble Amid Growing Fears of AI Valuation Bubble
Shares of major technology companies plummeted on Wednesday as investor concerns over inflated valuations in the artificial intelligence (AI) sector triggered a widespread sell-off. The downturn, which began in the U.S., rippled across global markets, with Asian indices bearing the brunt of the losses.
Asian Markets Hit Hardest
Japan's Nikkei 225 index closed 2.5% lower, dragged down by a steep decline in SoftBank shares, which plunged over 10%. The investment giant, a key player in AI development, has poured billions into tech firms like OpenAI and Intel, leaving it vulnerable to shifts in market sentiment. Analysts noted that SoftBank's recent rally-driven by AI enthusiasm-had created a "double-edged sword," attracting investors while exposing the stock to sharp corrections.
Elsewhere in Asia, South Korea's Samsung Electronics fell more than 4%, while the Kospi index dropped 2.85%. Taiwan Semiconductor Manufacturing Company (TSMC), a critical supplier for Nvidia, saw its shares decline nearly 3%.
U.S. Sell-Off Sparks Global Contagion
The sell-off followed a downturn in U.S. markets, where tech stocks retreated amid growing skepticism about AI-driven valuations. Nvidia, the first company to surpass a $5 trillion valuation, dropped nearly 4%, while Amazon-boosted earlier this week by a $38 billion investment in OpenAI-slipped 1.84%.
Adding to the unease, hedge fund manager Michael Burry, known for predicting the 2008 housing crash, revealed a $1.1 billion bet against AI-linked stocks Nvidia and Palantir. Burry's firm purchased financial options that would profit if the companies' share prices fell, signaling deepening doubts about the sector's sustainability.
"Sometimes, we see bubbles. Sometimes, there is something to do about it. Sometimes, the only winning move is not to play," Burry posted on X, echoing concerns about overheated AI valuations.
Analysts Warn of Overstretched Valuations
Financial analysts attributed the downturn to investor fatigue over AI hype and questions about whether current earnings justify sky-high valuations. Farhan Badami of eToro noted that while AI enthusiasm has driven record-high stock prices, "some of the super-high valuations out there aren't making sense."
Vincent Fernando of Zero One Consultancy warned that companies overspending on AI without clear returns could face further pullbacks. "The market can worry if the company is overspending on AI and won't make a sufficient return on that spend," he said.
Outlook: Correction Expected to Continue
Badami predicted the tech stock correction could persist over the next year as investors reassess the sustainability of AI-driven growth. "Spending within AI-focused tech firms has been really high, and for some companies, they are not making enough money to justify the spending," he added.
