AI Hype Cooling? U.S. Tech Giants Lead Selloff, Nasdaq Posts Biggest Weekly Drop of the Year

Recently, the U.S. stock market has taken a sharp turn. The 'Magnificent Seven' tech giants—Apple (AAPL), Tesla (TSLA), Nvidia (NVDA), Microsoft, Amazon, Alphabet (Google's parent), and Meta—once revered by investors, have faced a collective selloff, dragging the Nasdaq Composite Index to its largest single-week decline of the year. Meanwhile, the S&P 500 and the Dow Jones Industrial Average have shown divergent performance, fueling intense debate over whether the 'AI frenzy' is cooling. This article delves into the underlying causes of this correction, focusing on disappointing earnings, valuation adjustments, and index divergence.

Earnings Season Delivers Shocks, Tarnishing the 'Magnificent Seven'

The immediate trigger for this tech stock pullback was the generally weaker-than-expected earnings reports from the Magnificent Seven. According to company disclosures, Apple saw slower revenue growth due to sluggish iPhone sales in certain markets. Tesla faced margin pressure from EV price wars and cooling demand. While Nvidia maintained high growth, some investors worry its data center business may be nearing a peak. Additionally, Microsoft and Amazon reported slowing cloud computing growth, and Meta's advertising revenue fell short of analyst forecasts.

'These companies have almost coasted on AI dividends for the past few quarters, but now the market is demanding more concrete evidence of earnings growth,' noted a senior Wall Street strategist in a research report. Following the earnings releases, shares of the Magnificent Seven generally declined, with Tesla and Apple experiencing particularly sharp weekly drops, exacerbating the panic selling in the Nasdaq.

Valuation Correction: From 'Faith Premium' to 'Rational Reassessment'

Beyond earnings performance, elevated valuations are a core factor in this adjustment. Over the past two years, the AI boom has driven a significant expansion in the price-to-earnings (P/E) ratios of the Magnificent Seven, with some stocks' forward P/E ratios briefly exceeding 40 times. However, as expectations for Federal Reserve rate cuts have been delayed and U.S. Treasury yields have risen, high-valuation tech stocks have been hit hardest. Market data shows that the aggregate P/E ratio of the Magnificent Seven has fallen about 15% from its peak earlier this year, though it remains above historical averages.

'When risk-free rates rise, investors reassess the discounted value of future cash flows,' explained a quantitative analyst. This means that even if the long-term AI outlook remains unchanged, short-term stock prices need to digest excessive valuation premiums. Furthermore, some institutions have begun reducing their tech holdings and rotating into value sectors like financials and energy, intensifying capital outflows from the Magnificent Seven.

Index Divergence: Nasdaq Leads Decline, Dow Shows Relative Resilience

In this correction, the Nasdaq has borne the brunt, recording its largest weekly loss of the year. In contrast, the S&P 500 has declined less, and the Dow Jones Industrial Average even managed a weekly gain at one point. This divergence reflects a profound shift in market structure: the Nasdaq is heavily concentrated in the Magnificent Seven tech stocks, while the Dow has a higher weighting in sectors like financials, industrials, and consumer goods.

According to recent Federal Reserve statements and economic data, the U.S. labor market remains robust, and the services PMI continues to expand, supporting the performance of traditional economic sectors. Bank stocks, healthcare stocks, and utilities within the Dow have rallied against the trend, partially offsetting the drag from tech. The S&P 500, with its roughly 30% tech weighting, has performed somewhere in between.

'This is not a systemic risk event, but rather a rotation of capital away from the crowded AI trade into other sectors,' commented a fund manager. He added that historically, whenever tech valuations become stretched, the market experiences similar 'style rotations.'

AI Frenzy Cooling? Or Just a Pause?

Opinions are sharply divided on whether the 'AI frenzy is cooling.' Bears argue that the commercial adoption of AI is slower than expected and that regulatory risks (such as the EU AI Act) could curb industry expansion. Bulls, however, emphasize that AI infrastructure investment is still in its early stages and that the long-term growth thesis for companies like Nvidia and Microsoft remains intact.

According to CoinGecko data, AI-themed cryptocurrency tokens have also pulled back recently, though their declines have been less severe than those of tech stocks. This may suggest that some speculative capital is still betting on the AI theme, but overall sentiment has shifted from euphoria to caution.

Looking ahead, analysts generally believe that whether the Magnificent Seven stocks can stabilize depends on upcoming macroeconomic data (such as CPI and nonfarm payrolls) and the Fed's interest rate path. If inflation continues to ease and rate-cut expectations rise, tech stocks could see a rebound; otherwise, the valuation adjustment may continue.

Risk Warning

The above content is for reference only and does not constitute investment advice. The stock market involves risks, and investment should be made cautiously. The data and views cited in this article are from public sources, and their accuracy or completeness is not guaranteed. Investors should make independent decisions based on their own risk tolerance.