Wall Street closed lower on Tuesday following valuation concerns related to AI infrastructure bigwigs. Market participants booked profits on these highly overvalued stocks after three major investment banks warned of overstretched valuations of this space. Supreme Court’s hearing on President Donald Trump’s tariffs on Wednesday also rattled investors. All three major stock indexes ended in negative territory.
The Dow Jones Industrial Average (DJI) fell 0.5% or 251.44 points to close at 47,085.24. Notably, 18 components of the 30-stock index ended in negative territory, while 12 finished in positive territory. At the intraday low, the blue-chip index was down 459.62 points.
The tech-heavy Nasdaq Composite finished at 23,348.64, tumbling 2% or 486.09 points driven by the weak performance of AI infrastructure giants. At the intraday low, the tech-laden index was down 501.40 points.
The S&P 500 slid 1.2% to finish at 6,771.55. Out of the 11 broad sectors of the broad-market index, seven ended in negative territory, while four were in positive territory. The Consumer Discretionary Select Sector SPDR (XLY), the Energy Select Sector SPDR (XLE), the Technology Select Sector SPDR (XLK) and the Industrials Select Sector SPDR (XLI) fell 1.7%, 1.1%, 2.6% and 1.2%, respectively.
The fear gauge, the CBOE Volatility Index (VIX) was up 10.7% to 19. A total of 19.82 billion shares were traded on Tuesday, lower than the last 20-session average of 21.04 billion. Decliners outnumbered advancers on the NYSE by a 2.45-to-1 ratio. On the Nasdaq, a 3.16-to-1 ratio favored declining issues. The S&P 500 recorded 68 new 52-week highs and 178 new 52-week lows. The Nasdaq Composite registered 1,134 new 52-week highs and 3,578 new 52-week lows.
Investors booked profits on AI infrastructure developers due to concerns about the highly overstretched valuation of this space. Last month, JPMorgan Chase’s CEO Jamie Dimon warned about a significant stock market correction within the next six months to two years.
Major investment banks also warned about the same. Goldman Sach’s CEO David Solomon said that it’s “likely there’ll be a 10 to 20% drawdown in equity markets sometime in the next 12 to 24 months.” Morgan Stanley CEO Ted Pick said: “We should also welcome the possibility that there would be drawdowns, 10 to 15% drawdowns that are not driven by some sort of macro cliff effect.”
Consequently, stock prices of AI infrastructure behemoths like Palantir Technologies Inc. PLTR, NVIDIA Corp. NVDA and Advanced Micro Devices Inc. AMD fell 7.9%, 4% and 3.7%, respectively. NVIDIA currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
