It’s been a wild week on Wall Street, and not in a good way. Over the course of just four days, the US stock market has seen a staggering $1 trillion vanish from its value, as a dramatic sell-off in tech companies rattled investors and sent shockwaves through global markets. The S&P 500, the bellwether index for US equities, closed down for the fourth consecutive day on Wednesday, August 20, 2025, amid mounting fears that the artificial intelligence (AI)-powered rally that fueled much of this year’s optimism might be teetering on the edge of collapse. According to The Daily Telegraph, this marks the index’s worst losing streak in months and has left traders and analysts alike questioning whether the AI boom is turning into a bubble set to burst.
Leading the downturn were the so-called "Magnificent Seven"—Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia, and Tesla—whose outsized influence on the Nasdaq Composite meant that the index suffered its steepest two-day slide since August 1, 2025. As reported by Tech Bytes, the Nasdaq fell by 1.4% on Tuesday and another 0.7% on Wednesday, with individual names like Micron and Palantir seeing drops of up to 7%. Shares in Nvidia, the world’s largest company by market capitalization at $4 trillion, fell 3.3% in early trading on Wednesday and were down 4.9% since Monday, while Intel shares plunged more than 7% and UK chipmaker Arm’s shares fell by 3.6%. The sell-off wasn’t limited to the US: global tech heavyweights like Taiwan Semiconductor, Infineon, SAP, and ASML also posted losses, underscoring the interconnectedness of today’s high-tech markets.
What’s behind the sudden panic? The proximate cause appears to be mounting skepticism over whether AI can deliver on its much-hyped promises. A bombshell report from MIT’s Sloan School of Management, released this week and cited by The Times and Tech Bytes, found that a whopping 95% of corporate generative AI pilot programs fail to advance beyond the testing phase. Billions of dollars have been poured into these projects, but the vast majority are generating "zero return" for businesses, according to the researchers. “Just 5% of integrated AI pilots are extracting millions in value, while the vast majority remain stuck with no measurable P&L [profit and loss] impact,” MIT academics wrote. Danni Hewson, head of financial analysis at AJ Bell, told The Daily Telegraph: “The MIT report into the AI boom has soured sentiment.”
OpenAI CEO Sam Altman didn’t help matters when he publicly acknowledged last week that some investors had become “overexcited” about AI. In his words, “When bubbles happen, smart people get overexcited about a kernel of truth. Are we in a phase where investors as a whole are overexcited about AI? My opinion is yes.” Still, Altman argued that AI remains profoundly transformative and revealed OpenAI’s intention to spend “trillions of dollars” on data center build-outs in the near future. But even with such bullish long-term plans, Altman’s warning—echoed by the MIT study—has added fuel to the fire for investors already jittery over sky-high tech valuations.
Those valuations have been a point of concern for some time. Oaktree Capital co-founder Howard Marks, a respected voice on market bubbles, told Bloomberg this week that the current environment reminds him of 1997, just before the infamous dot-com bubble burst. “Investors are by nature optimistic, and that optimism dies hard,” he observed. “I think the fluctuations of the market are mostly related to psychological fluctuations—people go from neutrality to liking stocks… to liking them too much. That’s the continuation that creates bubbles. We are probably in the early days of that.” Marks stopped short of "ringing the alarm bells," but his comparison to the era of "irrational exuberance"—a term coined by then-Fed Chair Alan Greenspan—was enough to give many pause.
Meanwhile, the political and regulatory backdrop hasn’t exactly calmed nerves. As reported by The Times and The Daily Telegraph, US Commerce Secretary Howard Lutnick announced plans this week to take a stake in chip firms like Intel in exchange for government grants aimed at spurring domestic factory construction. The news sent Intel shares tumbling 8.86% on Wednesday, as investors worried about potential government overreach and distorted competition. President Trump’s broader push to onshore chip production, including talk of investing in Intel, has added to concerns that the private sector could face increased politicization and intervention—factors that rarely sit well with Wall Street.
It’s not just the US feeling the pinch. Shares in Japan’s SoftBank, a major investor in OpenAI, fell 7% on reports it planned to invest billions in Intel. European tech names, including STMicroelectronics and ASML, also dipped. According to The Times, the global nature of the sell-off highlights how deeply the AI and chipmaking story is woven into the fabric of international markets.
Despite the turmoil, not everyone is ready to call time on tech. Ulrike Hoffmann-Burchardi, Chief Investment Officer Americas at UBS, advised clients not to become "overly defensive," noting that while some near-term volatility is to be expected after the run-up in valuations, tech earnings growth remains robust and companies are getting better at monetizing AI adoption. Nancy Tengler, CEO and CIO at Laffer Tengler Investments, told Bloomberg: “We’ve been trimming our tech holdings some; we’ve trimmed Microsoft, Oracle, Broadcom, Nvidia, and have added to housing names in the past few months. But even though there’s been something of a pivot, we absolutely do not think the tech trade is over.”
Market mechanics have also played a role in amplifying the swings. August is traditionally a volatile month for equities, as many investors and traders take holidays, leading to thinner trading volumes and more pronounced price movements. Phil Blancato, CEO of Ladenburg Thalmann Asset Management, explained to Reuters: “It’s much more about profit-taking and temporary rebalance here. If you get a Federal Reserve cut or a mention of it on Friday, this will reverse pretty quickly, but this is a lot to do with names pushed up to really lofty levels.”
All eyes are now on Federal Reserve Chair Jay Powell, who is set to deliver a closely watched speech at the Jackson Hole symposium on Friday, August 22, 2025. Investors are hoping for signals on potential interest rate cuts that could help steady the market. As The Times noted, the outcome of Powell’s remarks may well determine whether this week’s tech tumble proves to be a short-lived correction or the start of something more ominous.
In the meantime, the debate rages on: is the AI-fueled rally running out of steam, or is this just a bump in the road for a technology that’s still in its infancy? With $1 trillion wiped off the markets and confidence shaken, it’s clear that the stakes—and the uncertainties—are higher than ever.
