Tech stocks plunge on AI valuation doubts; oil surges amid Mideast tensions

Wall Street retreated decisively on Friday as investors grappled with two overlapping crises: doubts about AI valuations and a spike in oil prices driven by geopolitical conflict. The Nasdaq, the tech-focused index, fell 1.4 percent, continuing a sharp decline from Thursday when sharp falls in Nvidia and Amazon had already dragged the index down more than 1 percent. The selloff was broad enough that Nvidia—long the symbol of AI dominance—briefly ceded its position as the world's most valuable publicly traded company to Apple, a striking shift in market leadership.

The weakness in tech shares reflects a fundamental investor concern: after the Nasdaq's strong surge in the second quarter, analysts and investors are now questioning whether the enormous investments being made in AI can actually be recovered. Chinese startup Moonshot AI's release of a model on Friday that experts said could rival advanced offerings from US labs added to these doubts. As Angelo Kourkafas, analyst at Edward Jones, put it: "We have seen more volatility in the space as investors question both the pace and the payoff of the investments made." The underlying anxiety is whether the AI bonanza narrative—which drove much of the market's earlier optimism—can be sustained once real-world adoption and profitability are scrutinized.

Oil prices provided a second headwind. Crude jumped more than 4 percent on renewed fighting between the United States and Iran over control of the Strait of Hormuz, a critical waterway for petroleum transport, pushing Brent North Sea crude to $88.10 a barrel. Ipek Ozkardeskaya, senior analyst at Swissquote bank, noted that "developments in the Middle East are getting worse by the hour," and Trade Nation's David Morrison pointed out that "the ongoing conflict, combined with threats to major shipping routes such as the Strait of Hormuz and potentially the Red Sea, has increased uncertainty across global financial markets."

The combined effect rippled through Asia overnight. Japanese markets, heavily weighted toward semiconductors and tech, bore the brunt: Japan's Nikkei index fell 4 percent, with shares in semiconductor tester Advantest, Tokyo Electron, and tech investment giant SoftBank each sliding more than 7 percent. European markets and other Asian indices—including Taiwan's Taipei exchange, also tech-heavy—followed the sell-off. Netflix shares tumbled more than 7 percent Friday after the streaming giant warned of slowing sales growth, adding to the sense that even high-flying consumer tech faces headwinds. With South Korea observing a holiday, Tokyo and Taipei led Asia's selling into the weekend.

The market retreat reflects a fundamental shift in how investors are evaluating the AI sector after months of exuberant gains. The Nasdaq surged in the second quarter on AI enthusiasm, but recent weeks have seen analysts increasingly question the business case: can the enormous sums being poured into AI infrastructure and development actually be recovered as companies release new AI products to the public? This skepticism has exposed what some see as lofty valuations in tech shares, triggering a broader pullback in which semiconductor companies—core to AI infrastructure—have borne the brunt of selling. Nvidia's temporary loss of its crown as the world's most valuable company to Apple symbolizes this recalibration.

The selloff was compounded by external geopolitical pressure: renewed military tensions between the United States and Iran over the Strait of Hormuz sent oil prices surging, which analysts cite as a driver of broader market weakness. According to Edward Jones strategist Angelo Kourkafas, the combination of tech weakness and rising oil prices created a "risk off" sentiment, with investors both questioning the pace and payoff of AI investments and reacting to increased uncertainty around critical shipping routes. The contagion spread quickly to Asia, where markets heavily weighted toward semiconductors and tech—Tokyo, Taipei, and South Korea's tech-heavy indices—faced selling pressure heading into the weekend.