The AI-driven trading frenzy is experiencing its most significant cooldown of the year.
Investors are reassessing whether massive capital expenditures on AI infrastructure can deliver sufficient returns, leading to a broad sell-off in U.S. technology stocks this week. Oracle (ORCL) recorded its largest weekly percentage decline since the depths of the dot-com bubble burst in 2001. ON Semiconductor (ON) saw its shares plummet nearly 24%, its biggest single-day drop since 2020, after announcing a $7 billion deal to acquire Synaptics to enter the "physical AI" market, sparking investor concerns.
This Friday, as oil prices retreated, sectors like energy, healthcare, and consumer staples showed relative resilience. However, AI-related stocks continued to be the market's biggest drag. The Philadelphia Semiconductor Index plunged over 5% for the day and nearly 8% for the week, marking one of its worst weekly performances this year. The Nasdaq Composite remained under pressure. In contrast, S&P 500 components not tied to the AI theme gained over 2% collectively this week.
Despite a Friday rebound for five major tech giants including Microsoft, all members of the "Magnificent Seven" finished the week in negative territory. SpaceX, in its second week of trading, fell over 17%, erasing all gains from its debut week. The AI trade is undergoing a broad and sharp valuation reassessment.
A Goldman Sachs index tracking blue-chip technology, media, and telecom stocks posted its largest weekly decline since April of last year, which followed the announcement of reciprocal global tariffs by the Trump administration.
Oracle's Steepest Weekly Loss in Over Two Decades
In this sell-off, Oracle, which had previously surged on its AI data center narrative, was hit particularly hard.
The stock closed down nearly 2.6% on Friday, bringing its weekly loss to 19.4%, its largest weekly percentage drop since August 2001.
Previously, Oracle's rapidly rising market value was fueled by repeatedly increased data center construction plans and substantial AI cloud orders. However, the market is now focusing more intently on a core question: when will the soaring capital expenditures translate into profits and free cash flow?
Investors worry that amid an escalating AI infrastructure race, building hyperscale data centers requires continuous massive investment, while future customer demand, GPU supply, and the timing of profit realization remain highly uncertain. This has led to profit-taking in software and cloud computing companies whose valuations expanded rapidly earlier.
ON Semiconductor's Acquisition Announcement Triggers Sharpest Daily Drop in Years
The chip sector also faced heavy blows.
ON Semiconductor announced it would acquire Synaptics for approximately $7 billion, aiming to strengthen its position in human-machine interaction, edge AI, and smart endpoint markets.
The company stated the acquisition is intended to position it in the "physical AI" space, a transition it claims could expand its total addressable market by $30 billion, reaching $243 billion by 2030.
However, the capital market reacted harshly to the deal. ON Semiconductor shares closed down nearly 24% on Friday, marking their biggest single-day percentage decline since October 2020 and making it one of the worst performers in the S&P 500 index.
Key investor concerns include:
The substantial $7 billion deal size implies heightened financial strain for the company;
Fears that the merger carries significant integration risks, potentially hurting profitability in the near term;
The broader valuation pullback in the semiconductor sector is making investors more inclined to reduce risk exposure.
Against the backdrop of a general valuation retreat across the AI supply chain, even large-scale mergers with long-term strategic intent are struggling to gain market approval.
AI Trade Cools Broadly, Magnificent Seven All End Week Lower
The mega-cap tech giants were not spared. As of Friday's close:
Alphabet closed down about 2.2%, falling for a fifth consecutive session to its lowest level since April 21, with a weekly loss of 8.92%;
Nvidia fell 1.64%, also declining for five straight days to its lowest since April 13, ending the week down 8.62%;
Apple, which had fallen for four days through Thursday, rose 3.14% Friday but still finished the week down 4.77%;
Microsoft, down for two sessions prior, jumped 5.7%, ending its losing streak but still closed the week 1.69% lower;
Amazon, which fell over 3% on Thursday, gained 2.5% Friday but lost 4.79% for the week;
Meta, down for four sessions in a row, rose nearly 1.4% Friday but fell 4.67% weekly;
Tesla, having declined for three straight days, added 1.22% Friday but registered a 5.19% weekly loss.
This means all members of the "Magnificent Seven" recorded weekly declines, ending a period of leading the U.S. stock market higher for several months.
Market observers note a clear cooling in AI-related trading, with investors shifting focus back to valuations, profit realization, and cash flow, rather than solely on long-term AI growth narratives.
SpaceX Sinks Over 17% in Second Trading Week, Erasing Debut Gains
The highly watched new listing, SpaceX, also failed to escape the downdraft.
The stock eked out a mere 0.15% gain on Friday, but over its second full trading week, it plunged 17.17%, essentially wiping out the 14.94% cumulative gain from its first full week of trading.
The rapid cooling of the initial post-IPO frenzy is seen as a microcosm of the declining risk appetite for growth stocks. As the overall AI sector undergoes a valuation reset, newly listed tech companies are also facing greater profit-taking pressure.
AI Capital Expenditures Face Scrutiny on Profitability
Analysts believe the core logic behind this tech stock correction is not a disappearance of AI demand, but a market shift from "growth at any cost" to a focus on returns.
Over the past year, tech giants like Microsoft, Alphabet, Meta, Amazon, and Oracle have consistently raised capital expenditures to build AI data centers, procure GPUs, and expand cloud infrastructure. However, as these investments continue to reach record levels, more investors are questioning when these outlays will translate into genuine profit growth.
Simultaneously, various segments of the AI supply chain—from memory chips and GPUs to servers and software—experienced rapid valuation expansion. Once market risk appetite wanes, concentrated profit-taking can easily trigger a broad sector adjustment.
Several institutions suggest the market is not rejecting the long-term growth story of AI but is undergoing a round of valuation repricing. Future stock performance will increasingly depend on companies' ability to prove that massive AI investments can be consistently converted into revenue growth, profit improvement, and enhanced cash flow, rather than relying solely on capital expenditure narratives to support valuations.
Comments