4 signs that investors are rethinking the red-hot AI trade-awdailynews

webadmin

2025-11-06

4 signs that investors are rethinking the red-hot AI trade

There are four fresh warnings that the AI trade might be getting reappraised by markets in recent weeks.
Worries about valuations have cropped up, with a sell-off ripping through tech stocks on Tuesday.
Here are the other signs investors may be rethinking AI after a relentless, yearslong rally.

Investors hit the brakes on the AI trade this week.

The market doesn’t seem as confident about AI as it once was, evidenced by the sell-off that tore through the sector on Tuesday. Top leaders in the AI sector — including Nvidia, Meta, and Palantir — all tumbled, thanks largely to concerns that tech stocks have gone too far, too fast after years of stellar returns.

The hype, in other words, doesn’t seem as limitless as it did just a few weeks ago.

Here were the warning signs the AI trade got from investors this week:

Michael Burry broke a long period of silence to deliver a warning.

After a two-year hiatus from social media, the famed “Big Short” investor made a cryptic post on X, where he occasionally issues warnings about the market and the economy to his followers.

“Sometimes, we see bubbles,” Burry wrote this week. “Sometimes, there is something to do about it. Sometimes, the only winning move is not to play.”

Burry’s firm, Scion Asset Management, also placed bets against AI titans Palantir and Nvidia in the last quarter, according to a regulatory filing on Monday.

“Investors are sitting on huge stock market gains, and some might have taken profits today, especially in AI-related stocks, in response to Burry’s filing news,” Ed Yardeni, the president of Yardeni Research, wrote in a note.

Burry, who was one of the investors to call the housing bust ahead of the 2008 crisis, has a reputation for his persistently bearish takes on markets. In recent years, he’s sounded the alarm about a potential stock crash and a recession, battling against consensus forecasts of continued strength and more gains ahead for stocks.

Investors have begun paying attention to the elephant in the room: tech stocks have risent to meteoric valuations.

That’s been a concern in the market for years, but the discussion around whether some firms in the AI space are overvalued seemed to be front and center this week as investors surveyed the market after a breathless three-year rally since the debut of ChatGPT.

Here were some of the biggest declines in the tech sector since the closing bell on Friday:

Nvidia: -1.08%

Palantir: -8.35%

AMD: -2.42%

Broadcom: -1.85%

Meta: -1.89%

Goldman Sachs CEO David Solomon fanned valuation concerns when he speculated that the market could be heading toward a correction this week.

“It’s likely there’ll be a 10 to 20% drawdown in equity markets sometime in the next 12 to 24 months,” he said, speaking at the Financial Leaders’ Investment Summit in Hong Kong.

“We should also welcome the possibility that there would be drawdowns, 10 to 15% drawdowns that are not driven by some sort of macro cliff effect,” Ted Pick, the CEO of Morgan Stanley, also said at the event.

The decline in Palantir stock on Tuesday marked a significant moment in the debate over valuations. The firm beat on earnings and revenue in the third quarter, reporting $1.18 billion in revenue for the last three-month period, ahead of the expected $1.09 billion.

Despite the upbeat results and confident guidance, the stock tanked 8% after the report, as investors decided that after a blistering rally in 2025, the stock looked too rich.

“All of a sudden, we are starting to see some Tech heavyweights fail to live up to investor expectations,” David Rosenberg, the president of Rosenberg Research, wrote in a client note. “Even a company like Palantir has seen its share price hammered, even though its results did top expectations — nosebleed valuations got in the way.”

Meta stock has declined after the tech giant reported earnings and said it would double down on capex spending.

Last week, the Facebook parent said it could spend $70 billion to $72 billion this year on AI capex, up from its prior guidance of $66 billion to $72 billion. It also said capex was expected to increase in 2026.

Shares of Meta dropped as much as 14% on Thursday in a sign that investors are growing skeptical over the huge amounts of cash being thrown on AI. Its stock has continued to decline, trading 1.2% lower from Friday’s close.

Amazon, Meta, Microsoft, Alphabet, and Apple are on track to spend around $349 billion on capex this year, according to Business Insider’s latest analysis of company statements.

“It’s a yellow flag,” Peter Berezin, the chief market strategist at BCA Research, told BI of the sell-off in Meta. “If you don’t get that best-case scenario, you’re going to have pretty significant write-offs.

Read the original article on Business Insider

Your email address will not be published. Required fields are marked *