The so-called “Magnificent 7” had a historically poor start to the year, with all members posting double-digit losses. The S&P 500 recorded its weakest quarterly performance since the third quarter of 2022.
Yet, the sell-off was concentrated: 7 out of the 11 S&P 500 sectors remained positive YTD, suggesting this was particularly an AI and technology correction.
It always starts the same way: a spark of excitement, a new opportunity, a promise of untold riches. Prices begin to climb. Sceptics are dismissed. Fortunes are made — until they’re lost.
Because every bubble eventually bursts. And when it does, the fallout can ripple through entire economies. So will history repeat for the AI phenomenon?
Tech crunch
In the first quarter of the year, tech stocks came under pressure, weighed down by macroeconomic uncertainty and tariff tensions. The Nasdaq-100 fell by -8.1%, while the S&P 500 dropped -4.3%, its weakest quarterly performance since Q3 2022.
The so-called “Magnificent 7” had a historically poor start to the year as well, with all members posting double-digit losses. However, the sell-off was largely concentrated. Seven out of the eleven sectors in the S&P 500 remained positive year-to-date, indicating that this was primarily a correction focused on technology and AI-related stocks.
Tech giants are spending billions to scale up their AI capabilities, investing in data centre infrastructure and research and development. For instance, the Stargate Project, launched under President Trump, aims to position the US as a global AI infrastructure leader, with approximately $500 billion investment over four years. In Europe, the EU has introduced InvestAI, a €200 billion initiative for the AI sector, including €20 billion dedicated to AI gigafactories. The UAE has also partnered with France to invest between €30 and €50 billion in an AI campus and a 1-gigawatt data centre.
End of US exceptionalism
Still, recent events have shaken investor confidence. The DeepSeek controversy in January and the underwhelming IPO of CoreWeave, despite strong backing from Nvidia, have raised doubts about the sustainability of Big Tech’s valuations.
Wall Street is increasingly questioning the narrative of “US tech exceptionalism.” Even industry insiders are sounding alarms. Alibaba Chairman Joe Tsai recently warned that “the beginning of some kind of bubble” is forming around data centre construction. Microsoft, meanwhile, has reportedly cancelled several data centre projects.
Adding to the uncertainty, macroeconomic headwinds are mounting. A softening labour market, persistent inflation, and cautious consumer sentiment are eroding the post-2020 growth buffer. Economists are now warning of higher recession risks. JPMorgan recently raised its probability of a US recession from 40% to 60%.
Creative destruction
The present hype for all things AI, particularly in today’s unstable macroeconomic and geopolitical context, certainly brings to mind some of the speculative euphoria of the past.
Yet, it’s worth remembering that despite the excesses of the dot-com bubble, network technologies eventually reshaped the global economy. The crash occurred partly because widespread adoption of the internet took longer than investors had anticipated. Similarly, progress in fields like artificial intelligence may unfold over a longer timeline, but uncertainty about timing shouldn’t be mistaken for doubt about its potential.
