The great AI revaluation has begun. Wall Street’s tech-heavy indices took a drubbing this week as investors suddenly decided that the emperor of artificial intelligence might be wearing very expensive, very speculative clothes. The Nasdaq Composite shed 3.
2% on Tuesday alone, its worst single-day performance in months, as megacap names like Nvidia, Microsoft, and Alphabet suffered double-digit percentage declines from recent peaks. The trigger was a routine earnings miss from a second-tier AI firm, but the sell-off quickly became a stampede as the market collectively realised that AI valuations had been priced for perfection and then some. The yield on the 10-year US Treasury note crept higher to 4.
35%, reflecting a risk-off rotation out of equities and into safer government paper. Across the pond, London’s FTSE 100 managed a modest gain, buoyed by its defensive heavyweights, but the contagion is spreading. Asian markets opened sharply lower this morning, with Tokyo’s Nikkei down 2.
5% as SoftBank and other AI-darling stocks took a beating. The capital flight is palpable: money is moving out of anything with 'AI' in its prospectus and into the safety of cash, gold, and short-dated gilts. The UK gilt market, already jittery over sticky inflation and a looming Budget, saw the 10-year yield touch 4.
15% before settling. The Bank of England must be watching this with a mixture of relief and concern. Relief because a slowdown in AI hype might cool the frothy parts of the economy; concern because the broader sell-off could spill over into corporate credit and dampen investment.
The lesson here is as old as the South Sea Bubble: when everyone is piling into the same story, the exit door gets very narrow. The question now is whether this is a healthy correction or the beginning of a more sustained drawdown. For now, the market is voting with its feet, and the feet are heading for the exits.
