• Nasdaq 100 futures plunge 2.5% as investors question AI spending returns.
  • S&P 500 and Dow futures drop 1.3% and 0.6%, respectively, amid broad risk-off mood.
  • Higher Treasury yields and financial sector pressure add to cautious sentiment.

AI Optimism Fades

US equity futures tumbled Tuesday, led by a sharp selloff in technology and AI-related stocks, as mounting skepticism over the profitability of massive AI infrastructure spending sent shockwaves through markets. Nasdaq 100 futures slumped 2.5%, while S&P 500 and Dow futures fell 1.3% and 0.6%, according to data from CME Group. The moves extend Monday's tech-led decline, with heavy selling in AI giants including Nvidia (NVDA), AMD (AMD), and Broadcom (AVGO).

“The market is reassessing whether the enormous capital expenditure on AI will actually deliver the promised returns,” said a senior equity strategist at a major bank, speaking on condition of anonymity because they were not authorized to comment publicly. “For now, the fear is that we're overbuilding without clear monetization.”

The selloff also swept up space-related and data-center infrastructure companies, as traders worried about overcapacity. Oracle (ORCL) and Palantir (PLTR), both heavily tied to AI deployment, saw outsized declines. A person familiar with the matter said several hedge funds had unwound long positions in AI stocks since Monday's close, contributing to the accelerated drop.

Yields Weigh on Growth Stocks

Compounding the tech rout, Treasury yields rose, with the 10-year note yielding 4.35% as of late Tuesday morning, up 5 basis points. Higher yields raise the discount rate applied to future earnings, making high-growth, high-valuation stocks less attractive. Financial sector stocks also came under pressure on fears that rising borrowing costs could crimp profits.

“This is a classic repricing: tech is vulnerable to any hint that the AI spending cycle isn't generating commensurate earnings growth,” said a portfolio manager at a New York-based asset manager. “Meanwhile, higher yields are making it harder for companies to justify even higher capex.”

The broader market mood shifted toward defensives, with utilities and consumer staples outperforming. The Cboe Volatility Index, or VIX, rose above 18, its highest in three weeks, signaling increased investor anxiety.

Outlook Clouded by Uncertainty

Market participants are now focused on upcoming earnings reports from major tech companies and key economic data, including inflation and jobs figures, which could further influence Federal Reserve policy expectations. A senior economist at a global investment firm noted that if inflation remains sticky, the Fed may keep rates higher for longer, exacerbating pressure on richly valued tech.

“The AI narrative is not broken, but it's being stress-tested,” the economist said. “We need to see concrete evidence that investment is translating into profits, or the rotation out of tech could intensify.”

Attempts to reach representatives of Nvidia and Oracle for comment were unsuccessful by publication time.

Correction: An earlier version of this article misstated the day's move in the 10-year Treasury yield. It rose 5 basis points, not 7.