Futures tied to the technology-heavy Nasdaq index declined more than 2% on Tuesday, leading a broader selloff in Wall Street futures. Investor sentiment weakened due to concerns about impending U.S. interest rate increases and increased corporate borrowing to finance artificial intelligence (AI) infrastructure.
Global stock markets, including those in Europe and Asia, experienced pressure following a previous Wall Street selloff. Crude oil and precious metals also saw price decreases. The downturn in U.S. AI-related stocks is expected to continue as investors grow wary of inflated valuations, particularly as higher borrowing costs could increase the expense of AI development and deployment.
Mega-cap technology companies faced significant pressure in premarket trading. Shares of Nvidia and Alphabet each fell nearly 3%. Chipmakers Intel, Marvell Technology, and Advanced Micro Devices saw declines ranging from 5.5% to 7.5%. These movements reflect a broader market reevaluation of growth stocks, especially those with high valuations tied to future AI prospects.
SpaceX shares dropped 4.5% after the company, a megacap entity, accessed the bond market to fund AI and infrastructure spending. This move followed a recent initial public offering (IPO) earlier this month, despite the company reporting net losses in the previous year. This action by SpaceX reignited concerns among analysts that major technology firms might be overspending on AI infrastructure and increasingly relying on debt to finance these expenditures.
The CBOE Volatility Index, often referred to as Wall Street’s fear gauge, reached an over one-week high, climbing 2.84 points to 20.12. This increase indicates heightened investor anxiety regarding market stability. The rise in volatility coincides with expectations of more aggressive monetary policy from the Federal Reserve, contributing to a risk-off environment for investors.
Traders now anticipate the U.S. Federal Reserve will raise borrowing costs by a total of 50 basis points by December, according to the CME Group’s FedWatch Tool. This expectation marks an increase from projections two weeks ago, which foresaw only a single 25-basis-point hike. Investors are pricing in a more hawkish monetary policy stance, influenced by the outlook under new Chair Kevin Warsh.
Concerns over elevated valuations in AI-related companies have re-emerged. This follows a strong rally earlier in the quarter, which occurred in the aftermath of a Middle East ceasefire. The recent market performance suggests a shift in investor focus from geopolitical optimism to fundamental economic factors and corporate spending practices.
The yield on the short-term 2-year Treasury note slipped approximately 4 basis points to 4.19%. In the preceding session, this yield had reached its highest point since February 2025. Bond market movements often signal investor expectations for future interest rates and economic growth, with rising yields typically indicating higher borrowing costs for companies and consumers.
The market remains sensitive to the Federal Reserve’s future policy decisions and their impact on corporate financing. Investors will closely monitor upcoming economic data and central bank communications for further indications of the monetary policy trajectory. The sustainability of AI-related spending, particularly when financed by debt, will also be a key area of focus for market participants.
Uncertainty persists regarding the long-term profitability of extensive AI infrastructure investments, especially if borrowing costs continue to rise. The market will watch how major technology companies adjust their spending strategies and how these adjustments affect their financial performance and overall market valuations in the coming months.