U.S. Tech Chip Stock Sell-Off Continues as AI Bubble Sparks Investor Fears

Tech chip stock sell-off continued for the second day over AI bubble fears. According to Yahoo Finance, stocks of major tech companies dropped as investors reacted to concerns about the sustainability of the AI boom. On August 19, NVIDIA stock dropped 3.5% while Apple and Amazon stock lost close to 2% of their value.

Shifting Investor Sentiments

AI bubble fears hit tech stocks in the U.S. as some investors raised concerns about overestated AI-driven gains and sought to reduce risk on their portfolios and preserve profits.

Earlier this week, investor sentiments on the AI market soured after the AI bubble comment by OpenAI CEO Sam Altman and a recent Massachusetts Institute of Technology (MIT) report. According to the MIT report, 95% of the companies studied by the Institute are not receiving return on AI. The tech institute released its report soon after Altman informed reporters about his thoughts regarding an AI bubble.

“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,” he said.
Federal Reserve Chair Jerome Powell is expected to speak at the Jackson Hole symposium and his anticipated speech is already creating caution. Investors fear it could create volatility in the market if it falls short of the market expectations.

“When you have overcrowding and you have had such strong performance, it doesn’t take much to see an unwind of that,” Truist Advisory Service Co-Chief Investment Officer Keith Lerner said.

Analysts have likened the recent chip stocks tumble, AI bubble concerns, and shifting investor sentiments in the tech market to a pendulum. Speaking to Yahoo Finance, Gil Luria, an analyst at DA Davidson said “this is really just a pendulum swinging back.”

The January Stock Turmoil

Over the past seven months, AI stocks have surged after Chinese AI firm DeepSeek overtook ChatGPT and sparked turmoil in the US tech market in January 2025. At the time, the cost-effective model cast doubt on the huge amounts that major tech companies in the US spend on AI infrastructure.

As DeepSeek’s AI advancements took center-stage, Microsoft and Meta defended heavy AI investments terming it critical in maintaining their competitiveness in the dynamic field and meeting their corporate needs. Since the tech market sell-off experienced early this year, investor fears have been quelled by two positive earnings reported by major AI firms.

Wall Street hailed recent quarterly reports by Amazon, Meta, and Alphabet after they surpassed analyst expectations. The tech giants attributed revenue growth to AI, which they said had boosted their business units. The US government has also provided clarity on trade policies, a move that has boosted investor confidence in the AI market.

Varying Perspectives on AI Potential

Analyst perspectives on AI potential vary. According to Luria, the high earnings reported by leading tech companies overshadowed the fact that their AI infrastructure spending forecasts also rose significantly.

“The AI trade was getting so expensive that all it took was some comment from Sam Altman to make the investment community take some profits off the table,” he said. According to the analyst, AI applications are still limited to what consumers are currently using it for, which includes AI chat bots and search engine tools.
But there are those who believe that AI has the potential to catapult the tech market to new heights.

“We are still in the early days of the AI Revolution as the use cases are just starting to massively expand as more companies recognize the value creation being driven by a handful of tech companies led by the Godfather of AI, CEO Jensen Huang and Nvidia,” Wedbush Analyst Dan Ives said in a note to investors.