New York
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Tech stocks are dragging down Wall Street this week as investors flee once-hot shares.
The tech-heavy Nasdaq Composite just had its worst three-day slide since April and has shed more than $1.5 trillion in market value this week, according to FactSet data.
It’s been a turbulent few days for Wall Street, Big Tech and the entire software industry. There are several reasons for that:
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Nerves about AI tools disrupting business models are hurting software stocks.
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Investors are weary of Big Tech’s massive spending spree on building data centers to power the AI boom.
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Tech stocks were already expensive from big gains in recent years, making them susceptible to a “shoot first and ask questions later” sell-off.
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The AI tide lifted all boats for a while; now Wall Street has to get picky about winners and losers.
A sell-off in risky assets like bitcoin — which just hit its lowest level since October 2024 — also probably fueled investors’ desire for safer assets.
“Recent months have seen a shift from the ‘every tech stock is a winner’ mindset to a more brutal landscape of winners and losers,” Jim Reid, head of global macro research at Deutsche Bank, said in a Thursday note.
Software slumps on AI nerves
AI startup Anthropic on Friday released new tools that the company says can do more tasks for the legal industry. That made Wall Street nervous that companies will soon be able to dump their existing, specialized subscriptions to data analytics and research software, directly hurting software companies’ bottom lines.
The jury is still out on whether that will actually happen. But investors were spooked and dumped shares in legal and financial software and services companies.
An exchange-traded fund tracking the software industry has dropped eight days in a row. And there have been nerves about AI eating into software’s market share for a while. Salesforce (CRM), a software company in the blue-chip Dow index, slumped 20% in 2025 and is down 28% so far this year.
Big tech keeps spending
Meanwhile, Wall Street is in the midst of corporate earnings season. There are lingering concerns (remember nerves about an AI bubble?) about Big Tech’s aspirations to build out massive data centers and infrastructure to power the AI boom and uncertainty about just how profitable that building rush will prove.
Microsoft (MSFT), Alphabet (GOOG) and Amazon (AMZN) all outlined plans across the past week to increase their spending on building data centers and infrastructure.
Wall Street wants to see evidence that these enormous expenditures will result in actual profits. Microsoft shares dropped 10% on January 29 after the company reported earnings. Amazon shares fell 11% in after-hours trading Thursday after it reported earnings.
“The bar for Big Tech remains extremely high,” Seana Smith, senior investment strategist at Global X ETFs, told CNN.
“Markets are only rewarding AI investment when it is paired with clear, durable revenue growth,” Smith said.
Tech is vulnerable to a sell-off
The AI theme has driven the stock market higher across the past three years. Some investors are balking at paying those high prices and are instead looking for off-ramps.
Shares of chipmaker Advanced Micro Devices (AMD) on Wednesday sank 17% and had their worst day since 2017 after the company forecast slightly less revenue in the first quarter than analysts had expected.
Valuations, a measure of how pricey stocks are, have been elevated for some tech companies. Palantir (PLTR), a star of the AI trade, surged 340% in 2024 and 135% in 2025. Palantir is now down 27% this year and is down 37% from its record high in early November.
Oracle shares (ORCL) hit a record high on September 10 after the company announced a $300 billion deal with OpenAI. Oracle shares have tanked 60% since then.
“Crowded trades are difficult to exit,” Steve Sosnick, chief strategist at Interactive Brokers, said in a note. “Assets that have been granted premium valuations, whether through rational expectations or speculative fervor, are more prone to messy selloffs if perceptions and/or momentum change.”
Winners and losers
In recent years, anything related to AI has been a hot trade on Wall Street. But now investors need to get picky about specific companies they think will benefit.
“Consensus about software companies has flipped to them being AI victims, not beneficiaries,” Sosnick at Interactive Brokers told CNN.
“The rising tide surrounding AI was lifting a lot of boats,” Sosnick said. “Now it’s forcing Wall Street to be much more selective and really decide who are the winners and losers. And that’s going to require a lot more detailed analysis, rather than just sort of riding the momentum train.”
Is the sell-off overdone?
Jensen Huang, CEO at Nvidia, said this week the idea that software will be replaced by AI was “illogical,” according to Reuters.
Barclays backs up that sentiment. “It just does not seem realistic” that AI companies can supplant those industry-specific software tools, wrote Nick Dempsey, direct of media equity research at Barclays, in a note. But with markets this touchy, headlines about the possibility are “clearly not helpful,” he added.
“At this point, the negativity surrounding AI-related tech is getting pretty intense,” Tom Essaye, president of Sevens Report Research, said in a note.
“Granted, there are reasons for the skepticism, but the declines in some of these stocks are substantial, and if AI is more resilient than expected (which has been the case in each test so far over the past three years), then there are opportunities [for buying] developing,” Essaye said.
CNN’s Matt Egan contributed reporting