The Nasdaq 100 index officially entered a technical correction on Friday, with a sustained decline in technology giant stocks pushing the index's drop from its peak to over 11%. This signifies that the core drivers supporting the bull market of the past three years are undergoing an unprecedented stress test.
As of the latest update, the Nasdaq 100 was down 1.22%. This marks the first time the index has triggered a technical correction—typically defined as a decline of at least 10% but less than 20% from a recent high—since the market turbulence induced by the Trump tariffs in April 2025.
The ongoing conflict involving Iran continues to shake investor confidence. Simultaneously, market skepticism is deepening regarding the return prospects of the massive investments technology giants are making in artificial intelligence infrastructure. The combination of these two pressures has accelerated the current wave of selling.
Despite this, Wall Street largely maintains an optimistic stance on the fundamental health of the technology sector. Analysts project that the "Tech Titans" will achieve a 19% earnings growth rate in 2026, surpassing the 16% expected growth rate for the remaining components of the S&P 500. Furthermore, following this significant pullback, the valuation of the Nasdaq 100 has become notably more reasonable compared to several months ago.
The current adjustment in the Nasdaq 100 is not attributable to a single factor. Geopolitically, the Iran conflict continues to suppress market risk appetite. Fundamentally, investors are growing increasingly cautious about the enormous investments tech giants are making in AI computing power, with rising doubts about when these investments will translate into more substantial financial returns.
Since the index peaked, Microsoft's stock has declined by 34%, facing its most challenging quarterly performance since 2008. Meta Platforms, Inc., grappling with the pressure of AI expenditures, has also been hit by additional legal issues, resulting in a 29% drop during the same period. Both companies are among the highest-weighted components in the Nasdaq 100, making their performance critically influential on the overall index.
The downturn is not limited to the primary investors in AI. NVIDIA, a major beneficiary of the AI investment surge, has retreated 18% since its October peak. The market is concerned that the company's high sales growth may be difficult to sustain as expectations cool for the rate of increase in AI computing demand.
Expectations of industry disruption driven by AI are also weighing on the software sector, with the impact spreading to more niche areas. Since October 29th, human resources software provider Workday and Atlassian, the company behind Trello, have both seen their stock prices fall by over 40%, a decline far exceeding the overall index. This reflects broad market anxiety about the potential for AI to reshape the enterprise software landscape.
Despite the severity of the current decline, the long-term investment thesis for the technology sector on Wall Street remains intact. According to data, the "Tech Titans" are forecast to achieve 19% profit growth in 2026. In contrast, the earnings growth expectation for the other 493 components of the S&P 500 is only 16%, indicating that the earnings growth advantage of tech giants remains significant.
From a valuation perspective, the Nasdaq 100's forward price-to-earnings ratio has compressed to 21 from 28 at the October peak, now trading at a slight discount to its 10-year historical average. This has increased its appeal for some investors focused on long-term allocation. While a significant portion of the negative news appears to be priced in, whether the market stabilizes will ultimately depend on when AI investments begin to materialize as tangible improvements in profitability.