AI stocks face renewed volatility as rate concerns and sector rotation unsettle markets

Traders Union
All News
Financial News
AI stocks volatility and rotation

Highlights

Nasdaq Composite drops 4.6 percent and Korea's Kospi falls over 7 percent this week as rate and valuation fears hit AI stocks.
Tech-sector retreat follows Federal Reserve's signal of a potential rate hike, shaking memory-related stocks and stoking concerns over unsustainable earnings momentum.
Pictet Asset Management notes ongoing rotation out of tech and into broader markets, supported by falling oil prices after the Strait of Hormuz reopens.

Rate fears and valuation concerns drive the latest sell-off

As reported by Financial Times, investors are debating whether the latest drop in AI-linked shares signals the start of a deeper unwind or a shorter-lived market adjustment. The tech-heavy Nasdaq Composite falls 4.6 per cent over the week, while South Korea's Kospi drops more than 7 per cent and trading is halted twice as pressure spreads through memory-related stocks.

Trevor Greetham, head of multi-asset investing at Royal London Asset Management, says he sees a bubble in both valuations and earnings in the technology sector. He describes the current retreat as a short-term wobble tied to interest rate expectations after the Federal Reserve indicates this month that its next move could be to raise rates, although he also says the tech rally is not over yet and that earnings momentum cannot be sustained indefinitely.

Rotation beyond tech reshapes market leadership

Arun Sai, senior multi-asset strategist at Pictet Asset Management, says the move does not mark the beginning of a major market correction. Instead, he views it as the continuation of a rotation out of technology stocks and into the broader market, a shift that begins in early 2026.

According to Sai, that rotation is supported by falling oil prices as the Strait of Hormuz reopens. He says this episodic broadening of market performance, together with the volatility that accompanies it, is becoming a regular feature of equity markets.

Our earlier coverage of Alphabet replacing Verizon in the Dow Jones Industrial Average highlighted how the reshuffle increases the index’s exposure to mega-cap technology and adds to concerns about late-cycle, AI-driven concentration. We noted that past Dow additions of high-profile tech names have sometimes coincided with weaker subsequent performance versus the stocks they replaced, fueling debate over whether the move signals durable leadership or a bubble-era warning.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.