Who moved markets. Big-cap tech and anything “touching AI” led the recent selloff after earnings and investment plans failed to reassure investors. According to reporting on the rout, the group has seen nearly $1.5 trillion of market value erased and names such as Microsoft and Amazon have each slid about 16% off recent peaks. That combination of high expectations and slow near-term monetization is the immediate catalyst.
What happened and where. Futures opened lower Tuesday in a holiday-shortened week as selling pressure favored the Nasdaq and other tech-heavy benchmarks, after a string of mixed results and dovish-to-uncertain guidance from several large firms. Sentiment has been amplified by market plumbing and behavioral effects: investors are punishing firms perceived as overinvesting, while bid depth thinned after the Presidents Day break. The result is broader volatility that’s spilling beyond pure software names into sectors exposed to AI disruption.
Why this matters and how it works. The core worry is simple. Hyperscalers are plowing capital into AI at scale, which soaks up free cash flow and delays visible returns, altering valuation math and making earnings the new inflection point for sentiment. Meanwhile, structural legal and regulatory noise is adding to risk appetite. Policymaker and legal disputes around new market structures, including prediction markets, are muddying confidence in market integrity, per coverage of the lawsuits. On the macro front, markets still price a path for easing: the FedWatch tool and traders imply about three 25-basis-point cuts this year, and that backdrop will shape how long buyers step in.
Immediate impact, next steps and what to watch. Expect choppy sessions as earnings season rolls through more big names, the India AI summit unfolds this week and regulators press on new market rules. Monitor: (1) follow-on revenue proof points from AI spenders, (2) short-term liquidity and flows into tech ETFs, and (3) any court or regulatory moves on market products that amplify uncertainty.
Position accordingly: trim exposure where earnings don’t show clear payback windows, and watch the next set of quarterly updates for clear signs that AI spending is converting to revenue.
