The week gone by was quite an eventful one for AI investors as they started feeling the tremors. Stocks such as CoreWeave, Super Micro Computer and SoftBank tanked over 20 per cent. These three stocks have lost 44 per cent, 40 per cent and 22 per cent, respectively, from their highs recorded this year.
Oracle, which had given sky high projections to multiply its cloud infrastructure business (cloud servers that can support AI applications), fell 9 per cent during the week and is down 31 per cent since the all-time high it hit in September. It has virtually lost all the gains it made since the mind-blowing projections for its FY30 revenue.
Even Mag 7 members such as Nvidia, Tesla, Microsoft and Meta Platforms were not spared as they lost anywhere between 4 and 9 per cent during the week.
Valuation jitters
It all started with Palantir Technologies’ Q3 earnings release on Monday. Though the company delivered numbers that beat estimates, the stock fell 8 per cent on Tuesday, as analysts cautioned investors about the astronomical valuations the stock is trading at. The stock trades at a trailing PE of 424x and 177x based on estimated CY26 earnings.
Concerns over valuations compounded when it was revealed that legendary hedge fund manager of The Big Short fame Michael Burry’s fund disclosed short positions in Palantir and Nvidia.
This was followed by OpenAI’s CFO, Sarah Friar’s comment at WSJ’s Tech Live event that the company is looking to create an ecosystem that includes a federal “backstop” or “guarantee” that could help the company finance its investments in high-end AI chips. Though she subsequently softened her stance, the market interpreted the comment as OpenAI’s insecurity to fund billions of dollars worth chip deals it has inked in recent months. Reports suggest that the company is expected to burn cash in billions of dollars through 2029.
With tremors in AI stocks, are such declines in share prices mere corrections or is a bear market in the offing? Here are some hard facts.
Mag 7 stocks today constitute about 30 per cent of S&P 500’s earnings. Four years ago (2021), this was a lower 17.5 per cent, though significant. While Mag 7 earnings have compounded at 20 per cent, the index’s earnings have merely compounded at about 6 per cent.
On an absolute basis, while Mag 7 earnings have doubled between 2021 and 2025, earnings of the rest 493 have remained absolutely flat. This simply underlines how the Mag 7 are single-handedly propelling the index’s earnings growth and how a lot is riding on the Mag 7 stocks and their AI ventures.
Deja vu moment?
Further, such strong earnings growth of 20 per cent is strikingly similar to the high growth reported by top financial stocks in the four years (2002-06) leading up to the global financial crisis (GFC). Earnings of these stocks grew at a CAGR of 23 per cent in the said years and interestingly, their earnings accounted just for about 12 per cent of S&P 500’s earnings in CY06. Today the market’s fortunes hinge more on the Mag 7 stocks than it hinged on the financials before GFC. This is a key risk to factor in.
Two data points further spooked investors last week. US Consumer Sentiment, per the University of Michigan, is now below the troughs of 2008. Also, job cuts in October hit over 1.5 lakh, the highest level for the month in 22 years, per a report by outplacement firm Challenger, Gray & Christmas. So far, pure play AI stocks such as CoreWeave have been correcting severely. If the economic weakness as indicated by these reports begin impacting the core businesses of Mag 7 going forward, then the tremors can turn into a quake. Investors globally need to be on alert.
Published on November 8, 2025