Tech stocks fall again as AI bubble fears mount
Tech stocks fell again on Friday, extending a difficult week for the sector as investors fretted over soaring valuations and a possible AI bubble.
Leading names including Nvidia, Palantir, Meta, AMD, and Tesla all suffered losses, erasing gains from earlier in the year and intensifying concerns about whether AI-driven growth can justify current market prices.
The sell-off came amid renewed worries over corporate debt and large-scale AI spending.
Oracle dropped almost two per cent on Friday, bringing its weekly loss to around nine per cent,, while AMD lost nearly nine per cent over the week and Broadcom fell more than five per cent.
High-profile AI companies have been hit particularly hard after a string of disappointing investor sentiment and concerns about the sustainability of capital-intensive AI projects.
AI bubble concerns
Friday’s session followed an earlier spike in unease when OpenAI’s chief financial officer, Sarah Friar, suggested the company was exploring “an ecosystem of banks, private equity, maybe even governmental” support to fund the expansion of AI infrastructure.
The remarks briefly stoked fears of a government-backed bailout, although chief executive Sam Altman quickly clarified that OpenAI does not want government guarantees and believes taxpayers should not cover private company losses.
“Market participants aren’t used to seeing companies with such close involvement in AI selling off like this,” said David Morrison, senior analyst at Trade Nation.
“It’s quite another thing to see stocks at the vanguard of AI development getting trashed without an obvious catalyst.”
Other analysts also highlighted the strain of high valuations and debt levels across the tech sector.
Record off-balance-sheet borrowing by Meta, $30bn with private credit firm Blue Owl, and Alphabet’s $17.5bn US bond sale, along with a €6.5bn issuance in Europe, have added to market jitters over the pace of AI-related capital expenditure.
Tesla also faced pressure, dropping 3.5 per cent in early trading despite shareholders approving a potential $1tn pay package for Elon Musk, contingent on the company achieving a dramatic increase in market value over the next decade.
Investors appear sceptical about the immediate feasibility of such growth targets, suggesting broader nervousness around the sector.
But some market watchers argue the pullback may be temporary.
Leah Bennett, chief investment strategist at Concurrent Asset Management, said: “This AI sell-off is part of a rotation rather than a collapse. AI spending is still robust, and the rally is likely to resume, though valuations remain stretched.”
Investor sentiment has also been affected by external economic uncertainty.
The ongoing US government shutdown, which has limited access to official economic data, is adding to market caution.
The lack of fresh nonfarm payroll figures for two consecutive months and a University of Michigan survey showing near-record lows in consumer sentiment have made it harder for traders to gauge the broader economy, compounding concerns over high-tech sector exposure.
Despite these pressures, former FCA chair Adair Turner said that fears of an AI-driven financial crisis may be overblown.
“All major financial crises in the last 50 years have been credit-driven,” Turner said. “We’re not seeing that in AI yet. The current sell-off is about valuations and sentiment rather than systemic risk.”
The tech-heavy Nasdaq Composite finished slightly lower on Friday, but the broader story of the week is the pressure building on some of the highest-valued technology firms.
The so-called magnificent seven – Nvidia, Meta, Amazon, Apple, Microsoft, Tesla, and Alphabet – have seen significant downward pressure, with Nvidia, AMD, and Palantir posting double-digit losses over the past five trading sessions.
As the week closes, the tech sector faces a delicate balancing act as investors remain eager to back AI-driven innovation but are increasingly wary of the extraordinary valuations and the rising cost of capital required to sustain growth.