AI fundamentals did not suddenly collapse. Demand for compute, cloud infrastructure and enterprise AI remained strong. What changed was the market’s willingness to pay increasingly high multiples while hyperscaler capex kept rising faster than near-term monetisation.
Forced selling then turned a valuation reset into a sharper decline as crowded positions were unwound.
The subsequent broad rebound across Nvidia, software and cybersecurity supports this view. I would not interpret the recovery as a return to “buy anything AI”, though. From here, earnings growth, margins and evidence of returns on AI spending should increasingly separate the winners from stocks that were simply benefiting from the theme.
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