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Tech Stocks Lead the Selloff

The downturn began when Palantir Technologies failed to impress investors despite topping analyst expectations. Shares tumbled after Monday’s record close, sparking a broader retreat in speculative and high-growth assets. A wave of cautious remarks from top Wall Street executives, including Ted Pick of Morgan Stanley and David Solomon of Goldman Sachs, added to the risk-off sentiment.

“After seven consecutive months of gains—the longest stretch in eight years—a pullback may simply reflect natural market rotation or profit-taking,” wrote Mizuho’s Daniel O’Regan. He added that the market’s sudden decline likely signals a “broader de-risking trend” affecting speculative assets, from crypto to AI-linked stocks.

Broader Risk-Off Move

Markets were further weighed down by declines in cryptocurrencies, meme stocks, and other speculative names, suggesting a widespread reduction in risk appetite. The 2-year Treasury yield fell to 3.58%, while the 10-year yield eased to 4.09%, as investors sought safety in government bonds.

Tom Essaye of Sevens Report Research said that until Wednesday, AI stocks had been “masking broader market struggles this earnings season.” He warned that Wall Street’s expectations have become overly optimistic: “The market is priced for perfection—and I mean perfection—and there’s a little bit of a disjointed existence there.”

Market Rotation and Next Steps

Despite the selloff, analysts view the pullback as part of a regular market rotation rather than the start of a deeper correction. “Investors are finally recalibrating expectations after months of exuberance in AI-related sectors,” said one trader. “Valuations had simply gone too far ahead of fundamentals.”

While the S&P 500 and Nasdaq remain near multi-year highs, continued weakness in speculative assets could test market sentiment as investors await upcoming economic data and the Federal Reserve’s commentary.

Core Scientific CoreWeave merger

The decision marks a significant setback for CoreWeave, the fast-growing AI infrastructure company whose proposed acquisition aimed to consolidate control over critical computing capacity across the United States. Institutional Shareholder Services (ISS) had advised investors to reject the transaction, citing valuation concerns and high volatility in CoreWeave’s share price.

Shareholders Say the Deal Undervalues Core Scientific

Several major shareholders, including hedge fund Two Seas Capital, argued that the merger undervalued Core Scientific’s long-term prospects. In a letter to shareholders, Two Seas founder Sina Toussi urged investors to reject what he called a “short-sighted” deal, writing that they faced “an easy choice: reject the transaction and participate in one of the most incredible growth opportunities in the history of the capital markets.”

Under the proposed agreement, Core Scientific shareholders were to receive 0.1235 CoreWeave shares for each of their own, with no downside protection if CoreWeave’s stock price fell. Given that CoreWeave shares have swung wildly since going public, investors said the fixed-ratio structure failed to provide sufficient certainty or value.

CoreWeave Responds, Pledges to Continue Partnership

CoreWeave CEO Michael Intrator acknowledged the decision and said the company would continue working with Core Scientific as a commercial partner. “We respect the views of Core Scientific stockholders and look forward to continuing our partnership,” Intrator said, while adding that CoreWeave will “pursue other deal opportunities” to meet its infrastructure growth goals.

CoreWeave had estimated that the merger would have eliminated $10 billion in future leasing expenses, helping it secure additional data center capacity needed to fulfill contracts with OpenAI and Meta. The collapse of the deal could complicate those expansion plans and limit CoreWeave’s ability to deliver on its ambitious growth targets.

AI Data Center Expansion Faces New Uncertainty

CoreWeave, based in New Jersey, has been attempting to evolve from a GPU hardware provider into a “full-stack” AI cloud platform through aggressive acquisitions. The company’s stock has surged more than 230% since its public debut earlier this year, reflecting investor enthusiasm for AI infrastructure. Core Scientific’s shares, meanwhile, have climbed about 40% year to date.

The termination of the merger highlights growing tension in the AI data center market, where valuations have skyrocketed and competition for computing capacity is fierce. Analysts say the failed deal highlights a widening gap between AI infrastructure providers and investors who are wary of excessive valuations and consolidation risk.

Alphabet’s AI Investments Pay Off

Alphabet impressed Wall Street by boosting its full-year capital expenditure plans by $8 billion to $93 billion and reporting record quarterly revenue of $100 billion. The company’s shares climbed nearly 7% in after-hours trading and were up 5.3% in early Thursday trading. CEO Sundar Pichai attributed the growth to surging demand in the Google Cloud unit and the rapid adoption of AI-powered products, such as the Gemini App, which now boasts 650 million monthly users, closing in on ChatGPT’s 800 million.

Pichai said enterprise AI services are generating “billions in quarterly revenue,” with a computing services backlog of $155 billion. A 15% increase in core search advertising also helped counter fears that AI chatbots were cannibalizing Google’s search business. Analysts said Alphabet’s ability to maintain margins while scaling AI infrastructure “demonstrates effective use of spending.”

Meta’s Massive Outlay Sparks Market Sell-Off

In stark contrast, Meta Platforms’ stock tumbled more than 12%, erasing roughly $240 billion from its market value after CEO Mark Zuckerberg warned that AI spending could exceed $100 billion next year. Despite a 26% increase in quarterly revenue to $51.2 billion, investors were concerned by rising expenses and declining margins. Meta’s operating margin fell to 40%, with R&D costs reaching 30% of revenue — the highest level in more than two years.

“Expenses are growing faster than revenue,” said Gene Munster of Deepwater Asset Management, projecting 35% expense growth versus 18% revenue growth in 2026. Zuckerberg defended the strategy, arguing that frontloading AI capacity was necessary to achieve artificial superintelligence. He emphasized that any excess computing resources could bolster Meta’s ad operations, which remain “compute-starved.”

However, analysts like Brian Wieser of Madison and Wall said Meta’s efforts appear disconnected from its core business: “Google and Microsoft are doing much more from a tech perspective. Meta’s actual business is selling ads.”

Microsoft’s “Planet-Scale” Ambition Faces Investor Caution

Microsoft shares fell 4% after hours, then another 2.3% on Thursday, despite reporting strong profits and a 39% surge in Azure cloud revenue. The company spent $35 billion in capital expenditures last quarter — up 74% year-over-year and $5 billion above forecasts — and expects to invest $140 billion next year.

CEO Satya Nadella told analysts the company was building “planet-scale infrastructure” to double its data center footprint within two years, describing the expansion as critical to maintaining leadership in AI and cloud computing. Microsoft’s valuation surpassed $4 trillion earlier this week following its restructuring agreement with OpenAI.

Investor Patience Tested Amid AI Arms Race

Market analysts said the divergent stock reactions highlight investor anxiety over how long it will take AI infrastructure spending to translate into tangible revenue. “Investors are worried that the rush to grab market leadership may cause an overshoot,” said Dec Mullarkey of SLC Management. “History is full of technology booms that left early investors battered.”

With Big Tech’s combined AI investment for the year expected to surpass $400 billion, the question remains whether these colossal bets will deliver sustainable profits — or signal the peak of another tech spending cycle.