The sell-off is not merely a correction in a single stock but a broader re-evaluation of the financial architecture supporting AI. Robert Pavlik, senior portfolio manager at Dakota Wealth Management, noted that weakness in AI stocks could drag down the entire technology sector, and in turn, the S&P 500. The concern is twofold: first, the massive capital expenditure required to build data centers, and second, the political landscape. Investors are wary that Democratic victories in the US midterm elections could slow down spending on the data centers essential for running AI systems. These facilities have been the primary engine behind the sector’s recent gains, with technology stocks surging more than 200% during the current bull market—nearly twice the overall gain of the S&P 500.
The impact of this spending extends beyond companies officially classified under the technology sector. Major cloud and internet giants, including Alphabet, Amazon, and Meta Platforms, are investing heavily in infrastructure despite being categorized in other sectors of the index. Consequently, the AI trade is deeply embedded in the broader market. However, the recent decline has altered the valuation metrics significantly. As of Thursday, the technology sector’s forward price-to-earnings (P/E) ratio fell to 17.1, down from above 32 in October 2025. This stands in contrast to the wider S&P 500, which has a forward P/E ratio of 17.9. For the first time since 2017, the technology sector’s valuation has fallen below that of the broader market, suggesting that investors may have already factored in substantial risks.
Keith Lerner, chief investment officer at Truist Advisory Services, suggested that the market may be pricing in a lot of bad news, potentially creating a scenario where even modest positive developments could trigger a strong rebound. Chuck Carlson, CEO of Horizon Investment Services, added that despite the recent fall, investors still have significant gains to book, with the S&P 500 up nearly 8% for the year and the technology sector gaining around 11% following a partial recovery on Friday. This suggests that while the momentum has shifted, the underlying trend has not been entirely reversed.
Looking ahead, several specific catalysts will determine whether this is a temporary dip or the start of a deeper correction. The planned initial public offering (IPO) of AI company Anthropic is a critical test of market sentiment. Reuters reported that some potential investors are questioning whether Anthropic can proceed with its IPO roadshow next week and remain on track for a November listing, with concerns partly linked to the sharp fall in tech stocks. The success of this listing will serve as a barometer for demand for new AI companies.
Simultaneously, corporate earnings will provide concrete data on the sustainability of AI spending. Cloud computing firm CoreWeave is scheduled to report results on Tuesday, offering insights into the financial strength of AI infrastructure providers. Nvidia, a primary beneficiary of the AI boom, will announce its earnings on November 17, with investors scrutinizing its outlook for chip demand. Dell Technologies is also expected to report on November 24, providing further signals on hardware spending. These results, combined with upcoming Consumer Price Index (CPI) data that may influence Federal Reserve interest rate decisions, will shape the market’s trajectory. Additionally, geopolitical tensions involving the US, Israel, and Iran remain a variable, with oil prices falling this week as investors hoped for de-escalation, though any further conflict could reintroduce volatility. The coming weeks will thus be a decisive period for determining if the AI trade can stabilize after its most severe shakeout in years.
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