AI Stocks Lose Spark as Wall Street Stumbles on Tech Pullback

U.S. stock markets turned lower on Tuesday as enthusiasm for artificial intelligence–driven gains faded, pulling major indexes into the red after a strong rally the day before. The Nasdaq led the decline, weighed down by losses in big technology and AI-related shares.

The broader S&P 500 slipped as investors paused to reassess valuations across the technology sector. The Dow Jones Industrial Average also weakened, though to a lesser extent. Shares of major AI players retreated sharply, with Palantir sliding despite reporting stronger-than-expected quarterly earnings and raising its full-year outlook.

Other key technology firms, including Nvidia, Oracle, and Advanced Micro Devices, also fell as profit-taking and concerns over excessive valuations swept through the market. Analysts described the move as a “healthy correction,” suggesting the AI sector may have risen “too far, too fast” and was due for a short-term pullback.

The downturn came as the prolonged U.S. government shutdown stretched into its 35th day, heightening uncertainty in Washington and raising the prospect of the longest shutdown in the nation’s history. With little fresh economic data available to shift sentiment, investors turned their attention to the bond market, where yields on both two-year and ten-year Treasury notes edged slightly lower.

In the wake of the recent pullback, investor doubts over sky-high valuations have come sharply into focus. Markets slipped as fresh quarterly earnings rolled in, causing some to question whether the rapid surge in tech and AI-related stocks can be sustained. The tech-heavy indexes led the retreat, underscoring how much of the recent market strength has been concentrated in a handful of high-flying names.

At the same time, broader market psychology appears to be shifting. With fewer economic data releases in the near term, attention has turned to structural risks — including stretched valuations, narrow market leadership, and the extended government shutdown in Washington. This change in tone from momentum-led optimism to valuation-driven caution suggests that markets may be entering a consolidation phase rather than a straight-line advance.