Key Takeaways:
- Major Indices Drop: The Dow Jones Industrial Average fell nearly 500 points (1%), the S&P 500 slid 0.8%, and the tech-heavy Nasdaq tumbled 1.2%.
- AI Bubble Concerns: The selloff was driven by growing investor fears of a potential bubble in the artificial intelligence sector, marking the fourth consecutive day of market losses.
- Tech Giants Hit Hard: “Magnificent Seven” stocks like Nvidia and Meta have seen significant price drops as investors question the profitability of massive AI investments.
- Yearly Context: Despite the recent downturn, major indices remain up for the year, with the S&P 500 still holding a 13% gain in 2025.
Major U.S. stock indices closed significantly lower on Tuesday, extending a losing streak to four straight days as investor anxiety over a potential bubble in artificial intelligence stocks continues to grow. The recent downturn marks a rare moment of turbulence in what has otherwise been a strong year for the markets.
The Dow Jones Industrial Average led the decline, shedding 498 points, a 1% drop. The broader S&P 500 fell by 0.8%, while the technology-focused Nasdaq Composite saw the sharpest decline, tumbling 1.2%.
AI Profitability Concerns Spook Investors
The core of the market’s anxiety stems from the AI sector, which has fueled much of this year’s growth. Investors are now questioning whether the colossal spending by tech giants on AI infrastructure, such as energy-intensive data centers, will translate into tangible profits.
“Tech companies have to spend to keep up with surging demand, but that demand largely hasn’t turned into profits or productivity,” Callie Cox, chief market strategist at Ritholtz Wealth Management, noted in a client memo. “Investors get skeptical about the payoff.”
This skepticism has directly impacted the “Magnificent Seven,” the handful of tech giants that have dominated market gains this year.
Tech Giants Feel the Heat
The recent selloff has put significant pressure on leading AI-related stocks. Shares of Nvidia, a key player in the AI chip market, have fallen nearly 9% since late October. Meta has experienced an even steeper decline, dropping 17% over the past month.
These declines reflect a broader cooling of enthusiasm as the market re-evaluates the short-term returns on long-term AI bets. While experts like Cox believe AI will eventually deliver economic benefits, she cautioned that “those who are overexposed to tech in their portfolios have to ride out this phase of selling.”
Broader Market Perspective
The recent losses have been substantial. The Nasdaq plummeted 3% last week, marking its largest weekly decline since April. The S&P 500’s drop also ended a three-week streak of gains.
However, it’s important to view this turbulence in the context of the entire year. Even with the four-day slide, the market’s performance in 2025 remains positive. The S&P 500 is still up 13% for the year, the Nasdaq has soared 17%, and the Dow has climbed a respectable 8%. This suggests that while caution is setting in, the underlying market strength has not been entirely erased.
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