A major selloff in technology stocks continued to happen Friday, pulling down global markets after concerns grew that AI-related stocks may have become too expensive. Nasdaq 100 futures dropped 2%, S&P 500 futures also fell as investors continued selling semiconductor stocks that had driven much of this year’s market rally.

The weakness was not limited to the US. Markets across Asia also declined sharply, led by chipmakers, as investors questioned whether heavy spending on artificial intelligence will continue to deliver strong returns.

Chip stocks lead the global decline

The biggest pressure came from semiconductor companies, with investors moving out of AI-linked stocks after months of strong gains. As reported by CNBC, the iShares Semiconductor ETF was down 3.7% in premarket trading, while the VanEck Semiconductor ETF lost 3.4%.

Among individual companies, Applied Materials and Lam Research each dropped around 5%. Intel and KLA Corporation were down more than 4%, while Arm and Micron each fell 4%. Nvidia, one of the biggest beneficiaries of the AI boom, slipped 3%. The semiconductor index has now fallen 6.9% this week and is on track for its third weekly decline in the last four weeks.

ALSO READ

Concerns grow over AI spending

Investors are becoming more cautious about whether the huge investments being made in artificial intelligence can continue to justify the high valuations of chip companies.

Many of the world’s biggest technology companies have been spending hundreds of billions of dollars to build AI infrastructure. Markets are now questioning whether those investments will generate enough profits to keep demand for AI chips growing at the same pace.

Guillermo Hernández Sampere, head of trading at MPPM, said investor nervousness has increased as earnings season begins.

“When there’s panic, no one wants to be the last one in a selloff, so the selling pressure increases. With the start of reporting, the suspicion of overvaluation has been confirmed and will continue for a bit,” Sampere told Bloomberg.

Asian markets fall sharply

The selloff spread across Asia, where technology shares came under heavy pressure.

Japan’s Nikkei 225 closed 4% lower, while China’s CSI 300 index fell 3.6%. Australia’s S&P/ASX 200 declined 0.5%. Taiwanese stocks also slipped into a technical correction as losses in chipmakers continued. South Korean markets remained closed for a public holiday.

ALSO READ

European markets were comparatively more stable because they have fewer technology companies than the US and Asia, although the Stoxx Europe 600 index still fell 0.7%.

Middle East tensions add to market worries

Apart from technology concerns, investors also reacted to fresh attacks and counterattacks in the Middle East.

Brent crude oil climbed above $85 a barrel and is heading for its biggest weekly gain since April. Gold recovered from a two-month low as investors looked for safer assets. The yield on the 10-year US Treasury slipped to 4.53%, while the US dollar remained largely unchanged.

Experts say fundamentals remain strong

Some market experts believe the long-term outlook for AI remains positive.

Francisco Simon, European head of strategy at Santander Asset Management, said the recent fall appears small compared with the strong rally seen earlier this year.

“We would distinguish between fundamentals and positioning. From a fundamental perspective, the picture remains solid: earnings momentum has been exceptional this year, and results are still coming in strongly,” Simon told CNBC.

He added that holding cash may offer better protection in the short term because higher oil prices could reduce the defensive appeal of government bonds.

“The key reassurance would probably come from the earnings season. If companies continue to deliver solid results, and valuations become more attractive after the correction, that could help bring longer-term buyers back.”

Netflix adds to pressure on US futures

Technology stocks faced additional pressure after Netflix forecast a second straight quarter of slower revenue growth, sending its shares down about 10% in premarket trading. Meanwhile, SpaceX said it would try another Starship launch in the coming days after Thursday’s mission was aborted because some engines failed to ignite.