Shares in leading technology firms fell sharply this week as investor confidence in the artificial intelligence sector began to weaken. Concerns about inflated valuations have triggered a global sell-off, with markets in Asia and the United States seeing significant declines.
Market Reaction Across Asia and the US
Japan’s Nikkei 225 index dropped by 2.5 per cent on Wednesday, led by a steep decline in technology investment group SoftBank, which fell by more than 10 per cent. The fall followed similar movements in the United States, where major AI-linked companies such as Nvidia and Palantir saw their share prices decline.
The downturn gained momentum after hedge fund investor Michael Burry, known for predicting the 2008 housing crash and depicted in the film *The Big Short*, revealed a $1.1 billion position against AI-related stocks. Burry’s fund purchased financial instruments known as options that would rise in value if shares in Nvidia and Palantir fall.
Investor Concerns Over AI Valuations
Burry’s move has intensified fears that the current enthusiasm for AI represents an unsustainable bubble. Over the past year, valuations of AI-linked firms have surged to record levels, driven by optimism around machine learning, automation and data analytics technologies. However, some analysts argue that expectations have outpaced the sector’s actual earnings potential.
Financial analyst Farhan Badami commented that 'fatigue over AI and the current earnings run has investors questioning the sustainability of the hype.' He added that the correction in tech shares is likely to continue over the next year as markets reassess long-term growth assumptions.
Key Companies Affected
Amazon, which recently announced a $38 billion deal with OpenAI, saw its shares fall by 1.84 per cent on Wednesday. Nvidia, which earlier this year became the first company to be valued at $5 trillion, dropped by nearly 4 per cent. SoftBank’s sharp decline weighed heavily on Japan’s Nikkei index, reflecting investor concerns about its significant exposure to AI start-ups and chip manufacturers.
Vincent Fernando, an analyst at Zero One, described SoftBank’s recent share rally as a 'double-edged sword,' saying that rapid price increases can make the stock vulnerable to sharp reversals whenever market sentiment shifts. He added that investors are increasingly worried that the company may be overspending on AI ventures without securing adequate returns.
Wider Impact on Asian Markets
The sell-off spread across Asia, with South Korea’s Samsung Electronics down more than 4 per cent and the Kospi index falling 2.85 per cent. Taiwan Semiconductor Manufacturing Company (TSMC), a key supplier for Nvidia, also dropped by almost 3 per cent.
According to Mr Badami, the adjustment across global technology markets is likely to persist, as investors reassess how much future profit can realistically be generated from current AI spending. He noted that for some firms, the level of investment in AI development remains high despite limited profitability, increasing doubts about long-term sustainability.
Looking Ahead
The recent volatility highlights growing unease about the pace of AI investment and the possibility that markets may have overestimated its short-term benefits. While AI continues to attract record levels of funding, analysts caution that sustained value will depend on tangible performance improvements and steady revenue growth rather than speculation. For now, global investors are watching closely to see whether the AI sector stabilises or whether the recent downturn marks the beginning of a broader correction across technology markets.
