Jamie Spencer
Monday’s market sell-off served as a stark reminder of the forces driving the bull market and the high expectations investors have for Big Tech earnings in 2025. A sudden drop in AI stocks, led by Nvidia (NVDA), sent shockwaves through the market.
AI Competition Sparks a Tech Sell-Off
The sell-off was triggered by news from Chinese artificial intelligence firm DeepSeek, which raised investor concerns about rising competition in the AI sector. This led to a sharp decline in major AI-related stocks:
- Nvidia (NVDA): down 16%
- Microsoft (MSFT): down 2%
- Alphabet (GOOGL, GOOG): down 2%
- Tesla (TSLA): down 2%
- Broadcom (AVGO): down 17%
Market Sentiment and Investor Concerns
“When expectations are high, one skeptical headline can knock the market off its axis,” said Callie Cox, chief markets strategist at Ritholtz Wealth Management.
Analysts have long warned that Big Tech’s rapid earnings growth could slow, posing a risk to the market. With index valuations near multi-decade highs and the top 10 stocks making up nearly 40% of the S&P 500, investors are growing cautious.
Big Tech’s Dominance Tested
Truist’s co-chief investment officer Keith Lerner explained the market’s reaction:
“You have so much concentration in one area of the market—this has been the AI-dominant theme—and when uncertainty enters, the immediate reaction is to sell first and ask questions later.”
Unlike previous concerns over interest rates or inflation, the risk to Big Tech earnings from AI competition had been largely overlooked. DeepSeek’s emergence suddenly provided a concrete reason for investors to question whether the sector’s rapid growth could continue.
Magnificent Seven Earnings at Risk?
In 2024, the Magnificent Seven (Nvidia, Apple, Microsoft, Alphabet, Amazon, Tesla, and Meta) outperformed the rest of the S&P 500 by 30 percentage points, according to Goldman Sachs. While their earnings growth is expected to slow in 2025, these companies are still projected to lead the market:
- Magnificent Seven Q4 earnings growth: 21.7%
- Other S&P 500 tech stocks: 9.7%
- Projected Q3 2025 growth for the Magnificent Seven: 24%
Lerner noted that Monday’s sell-off was a reality check for investors: “Washington matters, but tech is at the forefront of market returns this year.”
Conclusion
The sharp drop in AI stocks highlights the growing risks Big Tech faces in 2025. As the market reassesses the future of AI dominance, investors will be closely watching earnings reports and competitive developments in the sector.
