Stocks fell around the world on Tuesday as investors grew uneasy about the enormous sums being spent to build artificial intelligence, with the selling spreading from Asian chipmakers to U.S. technology giants and into the cryptocurrency market.
In the United States, the tech-heavy Nasdaq Composite fell 579.56 points, or 2.21%, to close at 25,587.04. The S&P 500 lost 1.44% to 7,365.47, while the Dow Jones Industrial Average held up far better, slipping just 0.09% to 51,665.49, according to Kiplinger's market wrap. Wall Street's fear gauge, the Cboe Volatility Index, climbed to 19.52, a more-than-one-week high.
The damage was heaviest in chipmakers, the companies whose hardware powers AI systems. Shares of SanDisk, Micron Technology and Arm each fell more than 10%, while Marvell, Western Digital, Texas Instruments and Qualcomm dropped about 9% in the same session. Nvidia and Alphabet also declined.
What an 'AI bubble' means
A bubble forms when the price of an asset rises far above what its underlying earnings can justify, propelled by optimism rather than profits, and then falls sharply when that optimism fades. The current worry is that technology companies are spending vast amounts on data centers, chips and electricity for AI without yet proving the investment will produce matching returns. Investors are openly asking whether AI is, as NPR put it, "one big bubble". The mood has shifted from rewarding heavy AI spending to demanding evidence it will pay off.
A global rout
The selling was most violent in Asia. South Korea's Kospi index tumbled close to 10%, tripping a circuit breaker that forced a roughly 20-minute pause in trading, as memory-chip makers SK Hynix and Samsung Electronics fell more than 12%, NPR reported. The Kospi had been up about 95% on the year heading into the session, CNN noted, so the drop met the technical definition of a correction — a fall of at least 10% from a recent peak. Japan's Nikkei 225 dropped 3.6%, with technology investor SoftBank sinking 15%.
Europe fared better. France's CAC 40 shed 0.7% and Germany's DAX lost 0.8%, while the U.K.'s FTSE 100 finished close to flat.
Beyond doubts about AI returns, traders pointed to a second pressure: fears that a more hawkish Federal Reserve could keep interest rates higher for longer. Costlier borrowing would make the global build-out of AI infrastructure more expensive to finance.
Crypto caught in the downdraft
Digital assets fell alongside stocks. Roughly $170 million in leveraged bets on Ether rising in price — known as long positions — were wiped out, or liquidated, after Ether dropped about 5% in a single session, according to Cointelegraph. Ether has fallen roughly 20% over 30 days, outpacing the broader crypto market's 17% decline.
The pressure on Ether predates Tuesday's session. U.S. spot Ether exchange-traded funds have recorded six straight weeks of outflows, totaling about $910 million since mid-May, the same report noted. Analysts cited by Cointelegraph said negative funding rates in Ether futures signaled "a lack of confidence from bulls" — analysis, not a settled outcome.
Whether Tuesday marks a lasting repricing of AI-linked assets or a pause within a longer rally remains an open question. What is clear is that, after a year in which AI optimism powered global indexes to records, investors are now demanding proof that the spending will turn into profit.
