- AI stocks have lost momentum as investors question whether massive spending on infrastructure will generate returns.
- Nvidia, Microsoft and other technology giants extended losses while chip stocks recorded their worst week in over a year.
- Rising tensions between the US and Iran have added fresh uncertainty, pushing investors towards safer assets.
The AI stock rally that powered global markets for much of the year has hit an unexpected roadblock. After three straight days of heavy selling, investors are beginning to question whether the extraordinary sums being poured into artificial intelligence can actually deliver the profits needed to justify current valuations.
The sell-off gathered pace as concerns over AI spending collided with renewed geopolitical tensions following the escalation of hostilities between the US and Iran. Together, the two developments triggered a broad retreat from technology stocks, with chipmakers taking the biggest hit.
The AI spending question gets louder
The latest market shake-up is not simply about falling share prices. It reflects growing unease over whether the hundreds of billions being invested by the world's largest technology companies in AI data centres, advanced chips and computing infrastructure will eventually translate into meaningful earnings.
Chipmakers sit at the centre of this debate because they are among the biggest beneficiaries of the AI boom. If companies begin slowing investment or fail to generate expected returns, demand for expensive AI processors could weaken.
That uncertainty weighed heavily on markets. Nvidia fell 1.5 per cent on Friday, while Microsoft lost 1.8 per cent. Apple recovered from early losses to finish marginally higher, rising 0.1 per cent, leaving the iPhone maker on course to reclaim its position as the world's most valuable listed company with a market value approaching £3.65 trillion (about $4.9 trillion).
SpaceX, which debuted on public markets last month at £100.50 ($135), dropped 4.5 per cent to close at £93.80 ($125.93).
The pressure extended well beyond individual companies. The technology-heavy Nasdaq fell 1.4 per cent on Friday and ended the week down 2.9 per cent. The S&P 500 slipped 1 per cent on the day, recording a weekly decline of 1.6 per cent.
Chipmakers suffered even steeper losses. The Philadelphia Semiconductor Index fell around 7 per cent over the week, marking its biggest weekly drop in more than a year. The index has now fallen more than 19 per cent since reaching a record high in late June, bringing it close to bear market territory.
Netflix added to the cautious mood after disappointing investors with weaker-than-expected third-quarter revenue guidance. Its shares dropped 7.3 per cent.
War fears deepen market anxiety
The AI concerns were amplified by rising geopolitical risks.
Fresh hostilities between the US and Iran raised fears over potential disruption to oil supplies through the Strait of Hormuz, one of the world's busiest energy shipping routes. Brent crude climbed 4.5 per cent to £65.55 ($87.99) a barrel, taking its weekly gain to nearly 16 per cent.
Higher oil prices could complicate the outlook for inflation and interest rates, prompting investors to reduce exposure to riskier assets such as high-growth technology companies.
Market volatility also picked up. The Chicago Board Options Exchange Volatility Index, often referred to as Wall Street's "fear gauge", rose to 18.09, its highest level in more than a week.
Chris Beauchamp, chief market analyst at IG, reportedly said, as quoted in a news report: "This is morphing from just a chip sell-off into something far broader. That is particularly obvious in indices like the Nasdaq, which has come so far in such a short space of time."
The nervousness spread beyond the US. Japan's Nikkei 225 entered correction territory, having fallen more than 10 per cent from its June peak. Taiwan's stock market dropped more than 6 per cent, its sharpest daily decline since the tariff-driven market turmoil of April 2025.
European markets proved relatively resilient because of their lower exposure to technology shares. London's FTSE 100 gained 0.3 per cent, while Germany's DAX and France's CAC 40 posted modest losses.
Another sign of growing caution came from company insiders themselves. According to EPFR Global Market Intelligence, US executives sold £57.8 billion ($77.6 billion) worth of shares during the first six months of the year, a 20 per cent increase from the same period last year and the second-fastest pace of insider selling in more than two decades.
For now, analysts suggest the market is undergoing a reality check rather than abandoning AI altogether. The technology remains central to long-term growth expectations, but investors appear increasingly unwilling to overlook the rising costs of building that future. Whether this becomes a short-lived correction or a deeper reassessment of AI valuations will likely depend on how quickly technology companies can prove that their record investments will translate into sustainable profits.
