The AI Stocks Selloff Could Be a Bust or a Blip. This Will Decide Which.

(ANGELA WEISS/AFP via Getty Images)

The pullback looks to have finally arrived. The artificial-intelligence trade and risky assets in general were suffering when the S&P 500 experienced tech-related losses, but the depth of the correction will depend on economic data and the Federal Reserve.

A pause in the AI trade isn’t exactly a surprise. Everyone from big bank CEOs to Big Short investor Michael Burry has been pointing to stretched valuations. Now cracks are appearing with punishing post-earnings reactions for AI darlings such as Palantir and Advanced Micro Devices.

The question is, how deep and long-lasting will the drop be? Some metrics point to a prolonged fall—economist Robert Shiller’s version of the cyclically adjusted price-to-earnings ratio recently breached 40 for the first time since 1999. Such cyclical peaks have generally coincided with negative stock returns for the next decade.

But any such historical measure has its limitations. Optimists note recessions are now less frequent. There are also more quality companies and technological shifts, which have led to higher corporate profits. AI already looks to be allowing companies to run with smaller workforces—look at recent job cut announcements from Amazon and IBM.

The market’s jitters are being exacerbated by concerns about the Fed’s willingness to keep cutting rates amid a lack of economic data caused by the government shutdown. Uncertainty over the Trump administration’s tariffs policy—which is about to be tested by the Supreme Court—isn’t helping, either.

There’s a path for those concerns to be resolved in the coming weeks. If the shutdown ends and a resumed flow of economic data confirms expectations of interest-rate cuts, while the Supreme Court clarifies the application of tariffs, this pullback could end up looking more like a blip than a bust. Until then, expect more pain in the frothiest areas of the market.

—Adam Clark

*** Don’t miss Barron’s insights and analysis. Add us as a preferred source on Google.

***

AMD Beats Expectations as Data Center AI Rapidly Scales

Advanced Micro Devices is aiming to crack Nvidia’s dominance in the market for artificial intelligence processors, garnering business from OpenAI and Oracle. It reported record third-quarter client revenue and strong guidance, results that CEO Lisa Su said demonstrate its rapidly scaling data center AI business.

• For the September quarter, AMD reported adjusted earnings of $1.20 a share and revenue of $9.25 billion, both beating expectations. Current quarter revenue is expected to be $9.6 billion at the midpoint, also above the average expectation.
• Third-quarter data center revenue rose 22% to $4.3 billion. Client and gaming sales rose 73% to $4 billion. Su said demand has never been greater “as every major breakthrough in business, science and society now relies on access to more powerful, efficient, and intelligent computing.”
• Intel and AMD use the x86 chip architecture in making the CPU processors that act as the main computing brains for PCs and servers. Su said many customers are planning “substantially” larger CPU buildouts in the next few quarters to support higher AI demand.
• Su also told analysts that AMD’s AI business is on track to grow to tens of billions of dollars in annual revenue by 2027. Last month, AMD struck a deal to supply OpenAI’s AI infrastructure buildout, including six gigawatts of AMD GPUs.

What’s Next: AMD didn’t include revenue from its Instinct MI308 GPU meant for the Chinese market in the third quarter numbers and the fourth quarter guidance. Su said AMD has received some licenses for shipments after the Trump administration reversed its prohibition on selling the chips.

— Tae Kim and Liz Moyer

***

Mamdani Wins NYC on Strong Night for Democrats

New York City has a new mayor. Zohran Mamdani beat independent candidate Andrew Cuomo and Republican Curtis Sliwa on Tuesday, while Democrats also won gubernatorial elections in Virginia and New Jersey.

• President Donald Trump gave Cuomo a last-minute endorsement, but Mamdani’s margin ended up being too big for that to matter. The Associated Press declared the self-described democratic socialist the winner at 9:34 p.m. Eastern time on Tuesday.
• Two gubernatorial elections also went in Democrats’ favor. In Virginia, former Democratic Rep. Abigail Spanberger defeated Winsome Earle-Sears, the current lieutenant governor, to succeed Republican Gov. Glenn Youngkin. Mikie Sherrill beat Jack Ciattarelli in New Jersey.
• In California, residents voted to redraw the state’s electoral map in a way that would likely give Democrats five more seats in the House of Representatives after the 2026 midterm elections. Gov. Gavin Newsom had pitched the referendum as a way to hurt Trump and counter a partisan gerrymander in Texas that would take five seats away from Democrats.
• Mamdani’s flagship policies weren’t popular on Wall Street. He has promised an additional 2% tax on millionaires and to raise taxes on businesses to pay for free buses, expanded child care and city-run grocery stores.

What’s Next: The strong showing by Democrats could make it even tougher for Congress to end the ongoing government shutdown, which entered a record-breaking 36th day Wednesday, making it the longest in history. Senate Democrats have refused to vote in favor of a funding bill unless it includes an extension of subsidies for Affordable Care Act premiums that are set to expire at the end of this year.

— Joe Light and George Glover

***

Novo Nordisk, Pfizer Trade Barbs in Fight Over Metsera

Novo Nordisk is pressing forward with its campaign to outbid Pfizer for the weight-loss drugmaker Metsera, raising its offer more than 30% higher than what Pfizer’s initially offered, not including potential milestone payments. Metsera is giving Pfizer until Thursday to counter.

• Novo’s new $62.20-a-share offer includes a $6.7 billion upfront payment, plus up to $2.8 billion more in milestone payments. Metsera’s pipeline of weight-loss medicines includes one that could be dosed monthly, instead of weekly like Novo’s Wegovy and Eli Lilly’s Zepbound.
• Metsera said Novo’s proposal values it at $10 billion, including the potential milestone payments, while Pfizer’s latest proposal values it at $8.1 billion. Pfizer has filed two lawsuits to preserve its deal, and its CFO told Barron’s it is continuing pre-integration planning with Metsera.
• Pfizer’s lawsuit accuses Novo of “bribing” Metsera, its board, and its controlling stockholders, and seeks to block the merger on antitrust grounds. Novo has ridiculed Pfizer’s claims and called its lawsuit “seemingly desperate.”
• Novo and Pfizer have likely both seen data that’s not yet public that gives them confidence in Metsera’s pipeline. Pfizer chief scientific officer Chris Boshoff told Barron’s that data seen during diligence suggests Metsera’s drug could be a “potential best-in-class.”

What’s Next: The Trump administration is negotiating a deal with Novo and Lilly to sell their weight loss drugs at $149 a month through its online portal, The Wall Street Journal reported, and allowing coverage by Medicare and Medicaid. An announcement could come Thursday.

— Josh Nathan-Kazis and Janet H. Cho

***

Norway Heats Up the Drama for Vote on Musk Pay Proposal

At least one major institution—Norway’s sovereign-wealth fund—won’t back the proposed $1 trillion pay for Tesla CEO Elon Musk and voted against it. The fund’s skepticism introduces a degree of uncertainty before votes are tallied at Tesla’s annual shareholder meeting on Thursday.

• Norges Bank Investment Management, which manages $1.9 trillion, said while it appreciates the value Musk has created at the electric-vehicle maker, it was concerned about the total size of the award, the dilution for other shareholders, and the lack of mitigation of key person risk.
• Investors are voting on the pay proposal by the board as Tesla’s focus shifts toward opportunities driven by artificial intelligence, including self-driving technology for its cars, a growing robo-taxi platform, and robots. Musk has even teased that the robo-taxi business would get bigger.
• Wall Street expects a majority of Tesla shareholders to vote in favor of Musk’s pay. Wedbush analyst Dan Ives expects a “big green light,” calling the incentives/pay package a smart move by Tesla’s board, because Tesla’s biggest asset is Musk.
• Norway’s fund is the sixth biggest Tesla institutional owner, according to FactSet, with about 1.2%. Musk, who can also vote, has a voting stake of 15%. Smaller pension funds and the American Federation of Teachers have publicly opposed the pay, while some, like Florida’s public pension, support it.

What’s Next: It’s unclear what Musk would do if shareholders reject the package, which awards him some 425 million incentive-laden shares and about 25% voting control. Musk has said that’s what he needs to keep his AI projects at Tesla, rather than moving them to his xAI company.

— Al Root and Janet H. Cho

***

Bitcoin Briefly Dips Below $100,000. What’s in Store for Crypto.

The price of Bitcoin fell below $100,000 for the first time since mid-June on Tuesday, extending a recent selloff that has dragged down cryptocurrency prices. Later the price bounced back above that key threshold, though it is still down from the record high of more than $126,000 on Oct. 6.

• Other cryptocurrencies were down, too. Ethereum was down more than 10% after a hack hit a decentralized finance protocol based on the token’s native network. Solana fell about 8.5%, and XRP was down 7.5%.
• Digital assets were struggling after several Federal Reserve policymakers said they would have to look at the data before deciding whether to lower interest rates next month. When borrowing costs remain high, cryptos become less appealing relative to interest-bearing investments, such as bonds.
• Risk assets in general were out of favor on Tuesday. After notching 49 fresh records in 10 months, gold’s rally has taken a breather, and is actually close to correction levels, defined as a drop of 10% or more from recent peak levels. It closed Tuesday at $3,947.70.
• Like cryptos, Fed rates policy is affecting gold prices. After Chair Jerome Powell said a December interest-rate cut isn’t a foregone conclusion, Chicago Fed President Austan Goolsbee signaled he’s not decided because he’s “nervous about inflation,” according to an interview with Yahoo.

What’s Next: Katie Stockton, founder and managing partner at Fairlead Strategies, says Bitcoin has broken below its 200-day moving average, meaning it could continue to fall. Her technical analysis puts the next reliable support level for Bitcoin around $94,200, MarketWatch reported.

— George Glover and Karishma Vanjani

***

Dear Quentin,

I saved a significant amount of money ($200,000) for my daughter’s 529 account, but she doesn’t want to go to college, or any other school. Are there any other ways I can consider transferring the wealth to her? I’m thinking of transferring the money to her Roth IRA, which was established when she was a teenager. I would take a hit for an unqualified expense, right?

— The Mother

Read the Moneyist’s response here.

— Quentin Fottrell

***

—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner