• The Nasdaq 100 fell 1.6% Tuesday, approaching a 10% correction from its June peak.
  • Investors are increasingly skeptical that massive AI spending by Big Tech will yield sufficient returns.
  • Earnings from Microsoft (MSFT), Meta, and Amazon this week will be pivotal in determining whether the selloff deepens or stabilizes.

The Nasdaq 100 slid 1.6% on Tuesday, bringing the tech-heavy index within striking distance of a market correction, defined as a 10% decline from a recent high. The selloff, which has erased roughly 10% from the June peak, reflects growing unease about the sustainability of the artificial intelligence boom that has driven much of this year's gains.

According to people familiar with investor sentiment, the primary concern is that the enormous capital expenditures on AI infrastructure by major technology companies may not translate into proportionate revenue or profit growth. Analysts have begun to question the near-term return on investment, especially as companies like Microsoft, Meta, and Amazon ramp up spending on data centers and specialized chips.

“The market is demanding evidence that AI spending is paying off,” said a portfolio manager who declined to be named. “Without clear monetization, the risk is that valuations compress further.” A spokesperson for Microsoft declined to comment, while Meta and Amazon did not respond to requests for comment.

The spotlight now shifts to quarterly results from the three tech titans, all due this week. Microsoft reports Wednesday, followed by Meta on Thursday and Amazon on Friday. Wall Street will scrutinize each company's cloud revenue, AI-related guidance, and margin discipline. The outcomes could either stem the bleeding or accelerate the downturn.

“The bar is high for these names,” said another analyst. “If they disappoint, we could see a deeper correction. But if they show robust AI monetization, it could restore confidence.”

Broader market conditions are also in play. The yield on the 10-year Treasury note rose to 4.2% on Tuesday, pressuring high-growth stocks, while the Cboe Volatility Index (VIX) climbed above 18, signaling rising anxiety. Historically, tech corrections of this magnitude have either been short-lived or deepened into bear markets, depending on earnings clarity.

As the trading day wound down, the Nasdaq was on the cusp of a correction—a level that, if breached, could trigger further selling from algorithmic and momentum-driven funds.

Correction: An earlier version of this article misstated the decline as 9.8%; the correct figure is approximately 10% from the June peak.