Buying artificial intelligence stocks looked like the easiest trade on Wall Street for the most part of the past two years. AI demand has been increasing, and Nvidia's market capitalization has been at the forefront, flirting with $5 trillion, and the broader technology trade carried the S&P 500 on its back.
However, that invincibility narrative might be cracking slowly, as a major technology selloff stretching across two consecutive sessions sent the Nasdaq Composite down more than 2.2% in a single day.
The AI Trade May Be Getting Crowded
Technology and semiconductor stocks had been responsible for much of the US financial market’s rebound since April, with investors piling into companies positioned to benefit from higher demand for chips, memory, cloud capacity, networking equipment, and data centers. The Nasdaq had gained 26% from March 30 through last week, while the Philadelphia Semiconductor Index had advanced more than 100% over the same period.
However, major technology stock selloffs have stretched a red Monday into Tuesday and now look like they might be bringing the streak to Wednesday. Nvidia (NVDA) fell by 4% on Tuesday, Micron Technology (MU) tumbled 13% in a retreat from record highs, and AMD (AMD), Broadcom (AVGO), and Intel (INTC) also declined as the hottest corner of the AI trade cooled down.
The Philadelphia Semiconductor Index (SOX) fell around 10% in one of its worst sessions in years, with Marvell dropping 17%, Micron falling 13%, and Intel and AMD each declining 11%. As it stands, the Nasdaq is now down by almost 6% from its June 2 peak.
How The AI Trends Could Spill Into The Wider Market
The AI sector’s invincible status has made it too important for the rest of Wall Street to ignore. The top ten companies in the S&P 500, eight of them effectively technology names, now account for more than 41% of the index market cap and 33% of earnings.
Major financial institutions and industry analysts project between $5.5 trillion and $7.6 trillion in global AI capital expenditures by large tech companies in 2030. If half of that projection is debt-financed by these hyperscalers, the resulting credit buildup would be massive. Amazon, Google, Microsoft, and Meta are collectively planning to spend $725 billion on artificial intelligence infrastructure in 2026 alone.
A decline in the largest technology names can weigh directly on index funds, retirement portfolios, exchange-traded funds, and investors who may not even realize how heavily exposed they are to a handful of companies.
Public hedge fund company Man Group described the debt-based increase in AI capital spending as one of the most aggressive investment cycles in modern corporate history. It warned that the cycle could unravel if revenue growth fails to increase fast enough, breaking the feedback loop in which higher valuations support more spending and stronger demand expectations.
Nvidia'a CEO Jensen Huang characterized the early June selloff as a buying opportunity, saying that the development of the artificial intelligence sector has just begun. Markets may well stabilize, but there is still a more fundamental question of whether inference revenue can grow fast enough and the effects this might have on the rest of the investment markets.
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