AI and Tech Stocks Drop as Investors Cool on Summer Rally

Wall Street’s recent tech-driven rally is losing steam as investors cool on artificial intelligence enthusiasm and prepare for key remarks from the Federal Reserve later this week.

The Nasdaq Composite fell 0.67% on Wednesday, following a 1.46% drop Tuesday, putting it on pace to snap consecutive weekly gains. The S&P 500 slipped 0.24% for its fourth straight day of losses, while the Dow remained relatively flat.

Palantir, one of the most closely watched AI stocks, tumbled more than 9% Tuesday and another 1% Wednesday. Nvidia, a key driver of the AI trade, was also lower, falling 3.5% Tuesday and edging down again Wednesday. Analysts say the declines reflect a rotation out of high-momentum tech stocks.

“Investors rotated out of high-momentum tech stocks, reflecting renewed jitters over the sustainability of the AI trade,” said Ulrike Hoffmann-Buchardi of UBS.

The pullback comes just days before Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Economic Symposium, where markets will be looking for clues on interest rate policy.

AI hype has fueled record highs for Big Tech this year, but comments from OpenAI CEO Sam Altman suggesting the market may be in a bubble, combined with an MIT study showing limited returns from AI testing, have cooled investor sentiment.

Big Tech giants, including Apple, Amazon, Meta, Microsoft, and Tesla, all fell this week, dragging down broader indexes. Meanwhile, more defensive sectors like consumer staples, utilities, and real estate outperformed.

Despite the retreat, analysts say the correction could be short-lived. “Tech stocks have had a massive run,” said Dan Ives of Wedbush Securities. “I think it’s just typical that investors are starting to take some chips off the table going into Labor Day.”

Even with this week’s pullback, AI-linked stocks remain among the market’s biggest winners of 2025. Palantir, for instance, is still up more than 100% year-to-date, despite recent volatility.

Credit: CNN Newsource

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