Investors put the brakes on AI trading this week.
As the sharp selloff that hit the sector on Tuesday shows, the market doesn’t seem to have as much confidence in AI as it once did. Top leaders in the AI sector all fell, including Nvidia, Meta, and Palantir. This is largely due to concerns that tech stocks are going too far, too fast, after years of impressive gains.
In other words, the hype seems as limitless as it was just a few weeks ago.
Here are the warning signs AI Trading got from investors this week:
1. Michael Barry woke up from hibernation and issued a warning.
“Big Short” investor Michael Burley has repeatedly sounded the alarm over the recent stock market crash. Jim Spellman/Wire Image
Michael Berry broke the long silence with a warning.
After taking a two-year hiatus from social media, the famous “Big Short” investor has posted cryptic posts on X, where he occasionally issues warnings to his followers about the markets and the economy.
“Sometimes bubbles may appear,” Barry wrote this week. “Sometimes you can do something about it. Sometimes the only way to win is not to play.”
Barry’s firm, Scion Asset Management, also bet on AI giants Palantir and Nvidia last quarter, according to a regulatory filing Monday.
“Investors are looking forward to a big rally in the stock market, and some may have booked profits today, especially in AI stocks, following the news of Barry’s filing,” Ed Yardeni, president of Yardeni Research, said in a note.
Barry was one of the investors who led to the housing collapse before the 2008 financial crisis and is known for his consistently bearish views on the market. In recent years, he has sounded the alarm about a collapse in stock prices and the possibility of a recession, contrary to consensus expectations that stocks will remain strong and rise further.
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2. Appraisal concerns suddenly come to mind.
Investors are starting to pay attention to the elephant in the room. Tech stock valuations are rising like a meteor.
This has been a concern in the market for years, but the debate over whether some companies in the AI space are overvalued seemed to be taking center stage this week as investors surveyed the market after a stifling three-year bull market since the arrival of ChatGPT.
Here are some of the biggest declines in the tech sector since Friday’s close.
NVIDIA: -1.08%
Palantir: -8.35%
AMD: -2.42%
Broadcom: -1.85%
Meta: -1.89%
Goldman Sachs CEO David Solomon speculated this week that the market may be headed for a correction, fueling valuation concerns.
“We are likely to see a 10-20% drawdown in the stock market within the next 12-24 months,” he said at the Financial Leaders Investment Summit in Hong Kong.
“We should also welcome the possibility of a 10% to 15% drawdown that is not caused by some kind of macro cliff effect,” Morgan Stanley CEO Ted Pick said at the event.
3. Sale of Palantir
Tuesday’s drop in Palantir stock marked a key moment in the valuation debate. The company beat third-quarter profits and sales, and reported sales of $1.18 billion over the past three months, beating expectations of $1.09 billion.
Despite upbeat earnings and confident guidance, the stock plunged 8% after the news as investors decided the stock was too rich after a wild rally in 2025.
“Suddenly, we are beginning to see that some high-tech companies are no longer meeting investor expectations,” David Rosenberg, president of Rosenberg Research, said in a client note. “Even companies like Palantir saw their stock prices fall despite better-than-expected results, hampered by nosebleed valuations.”
4. Meta’s capital investment plan
Meta shares fell after the tech giant reported earnings and said it would double its capital spending.
Facebook’s parent company said last week it could spend $70 billion to $72 billion in AI capital spending this year, up from its previous forecast of $66 billion to $72 billion. It also predicted that capital investment would increase in 2026.
Meta’s stock price fell as much as 14% on Thursday, showing investors are becoming increasingly skeptical about the huge amounts of money being poured into AI. The company’s stock continued to decline, trading 1.2% lower than Friday’s closing price.
Amazon, Meta, Microsoft, Alphabet and Apple plan to spend about $349 billion in capital spending this year, according to a new analysis of company statements by Business Insider.
“This is a yellow flag,” Peter Berezin, chief market strategist at BCA Research, told BI about Meta’s sharp decline. “If we don’t achieve that best-case scenario, we’re going to incur significant losses.
