This week witnessed a sharp decline in US tech stocks, with cryptocurrencies also erasing gains accumulated over the past 10 months in just one month. What’s behind the sell-off?
As of November 7, the tech-heavy Nasdaq index fell over 3% for the week, marking its worst performance since April. The S&P 500 dropped 1.6%, ending a three-week winning streak.
Eight leading AI-related companies collectively lost approximately $800 billion in market capitalization, while US firms closely tied to the AI boom shed nearly $1 trillion in value.
Key decliners included: - Nvidia, which recently became the world’s most valuable company, plunged over 7%, wiping out around $350 billion in market cap. - Microsoft dropped more than 4%, losing over $150 billion in value. - Oracle slid nearly 8%, shedding over $66 billion. - Other AI-linked stocks also suffered: Duolingo tumbled 24%, Palantir fell 11%, Broadcom declined 5%, and Meta slid 4%.
The sell-off comes amid growing scrutiny over AI-driven fraud. Reports reveal that Meta profited heavily from scam ads, with its security team estimating that one-third of successful fraud cases in the US are linked to its platforms.
**How Long Can the AI Boom Last?** After a global rally fueled by AI hype and rate-cut expectations, concerns over inflated valuations are mounting, triggering a broad market pullback—with tech stocks bearing the brunt.
A consensus is emerging that the US AI narrative is unsustainable. The market recognizes that the AI boom is built on uncertainty, as US firms heavily invest in developing artificial general intelligence (AGI)—a costly endeavor with no clear roadmap. Surveys show 95% of US companies adopting generative AI have yet to turn a profit, signaling a bubble driven by speculation. Notably, AI-related spending now contributes more to US GDP growth than total consumer expenditures.
Investors increasingly fear a bubble burst. Michael Burry, famed for predicting the subprime crisis, is now shorting the AI bubble, warning that excessive spending and low returns will lead to the collapse of many industry leaders.
Adding to investor unease is competition from China. The US industry acknowledges that nearly half of global AI talent comes from China, giving it a long-term advantage. Unlike the US’s AGI-focused approach, China’s AI strategy prioritizes industrial applications, offering cost and deployment advantages in global markets.
Goldman Sachs and Morgan Stanley predict a 10%-20% correction in global (primarily US) equities over the next 1-2 years due to tech stock froth. However, they remain bullish on Chinese stocks, particularly in AI, EVs, and biotech.
Goldman CEO David Solomon noted that even a 10%-15% market dip is common in cycles, urging investors not to abandon long-term strategies over short-term volatility.
**Cryptocurrencies Wipe Out 10-Month Gains in a Month** On November 7, cryptocurrencies nosedived, with Bitcoin briefly falling below $100,000. Within just over a month, the crypto market erased nearly all gains made in the first 10 months of the year.
As of November 9, major cryptocurrencies like Bitcoin and Ethereum continued sliding, with 24-hour trading volumes plunging 40%-50%. Over 130,000 traders faced liquidations, leading to widespread losses of profits and principal. The sell-off has sapped liquidity and confidence, leaving buyers increasingly cautious.
Charles Edwards of Capriole Investments noted that institutional Bitcoin demand has fallen below the pace of new coin issuance for the first time in seven months, signaling retreat by large buyers and broader risk aversion.