The Tech Stocks Selloff Spells Trouble for the AI Trade. Why Markets Are Twitchy.

(ANGELA WEISS/AFP via Getty Images)

An unexpected tech selloff has woken the market from its summer snooze.

Investors may have been dreaming of a calm week, culminating in Federal Reserve Chair Jerome Powell signaling multiple rate cuts ahead and more gains for stocks.

That may still happen, but Tuesday provided a reminder of how reliant the market is on tech companies and the artificial-intelligence boom. The S&P 500 fell for a third consecutive day despite a decent performance by the majority of its constituents—more than 350 of the index’s stocks finished higher.

The year’s winners suddenly became yesterday’s losers. Palantir led the way lower, tumbling 9%. AI server maker Super Micro Computer, chip maker AMD, and software company Oracle were also among the biggest decliners.

But the selloff was indiscriminate, most tech stocks were caught up in it—the bigger the rise this year, the harder the fall yesterday.

There were a couple of catalysts but nothing that really warranted the pressure. OpenAI CEO Sam Altman warned that AI is in a bubble, while an MIT report concluded that 95% of generative AI initiatives at companies are failing to achieve rapid revenue growth.

The big moves off relatively little news suggests a nervousness creeping in when it comes to the AI trade. It could also be profit-taking or a summer slump, but perhaps investors are finally starting to get twitchy about valuations.

The market may quickly get reassurance, or otherwise, when Nvidia —another sharp faller Tuesday— reports earnings next week.

In isolation, investors won’t lose any sleep over the selloff but if it’s a prelude to the AI bubble bursting then it could turn into a nightmare for the stock market.

— Callum Keown

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Palantir and Software Stocks Get Hammered in AI Scare

The risk of a deeper selloff for megacap software stocks including Palantir, Oracle, Microsoft, and CrowdStrike is rising after a big market pullback.

• Palantir, with a market value of about $375 billion, fell 9.4% on Tuesday and Oracle dropped 5.8%. Microsoft lost 1.4% and CrowdStrike slipped 1.8%. Chip stocks also retreated. Nvidia fell 3.5% and AMD declined 5.4%.
• A warning from artificial intelligence guru Sam Altman, who leads OpenAI, that some stocks in the sector could be overvalued may have helped trigger a selloff. The head of the ChatGPT developer reportedly said investors had become “overexcited” about AI, even amid reports his company is set to be valued at $500 billion in an employee share sale.
• For Palantir, it’s possible that some investors have been taking profits after an astounding bull run. The stock has climbed 118% this year and an eye-watering 409% over the past 52 weeks, driven by the data-analytics company’s government contract wins and strong earnings, becoming the market’s favorite AI software stock.
• The iShares Expanded Tech-Software Sector exchange-traded fund shows a notable technical breakdown. On Tuesday, the ETF, which fell 1.6% to $106.58, undercut its 50-day simple moving average for the first time since Feb. 21. The tech-heavy Nasdaq finished the day down 1.5%.

What’s Next: It remains to be seen whether the pullback is a temporary dip or the start of a bigger slump. It may signal a shift in investor sentiment away from high-growth technology names and into value stocks that have largely been left behind so far this year.

— Nate Wolf, Doug Busch, and Steve Goldstein

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Railroad CSX Faces Mounting Pressure to Find a Deal

CSX has been under pressure to find a deal that would expand its rail network ever since rivals Norfolk Southern and Union Pacific agreed to a tie-up that would create a transnational railway. Now, the activist fund Ancora is raising the stakes, warning CSX to act quickly or risk impairing its long-term value.

• The hedge fund sent a letter to CSX earlier this month and made it public on Tuesday telling it to pursue talks with Berkshire Hathaway-owned BNSF Railway and the Alberta-based Canadian Pacific Kansas City Limited. It urged the board to officially say it’s working with advisors to explore options.
• CSX told Barron’s that it welcomes all opportunities to enhance shareholder value and that it appreciates the input of its shareholders and engages regularly with them. But Ancora worries that CSX might miss out on opportunities if it waits, according to the letter, which criticizes management.
• The letter suggests a tie-up with Canadian Pacific may be the best option. To get around any difficulties with regulatory approval by the U.S. for an acquisition by a Canadian company, Ancora said a transaction could be structured as a reverse merger under which CSX acquires CPKC.
• Union Pacific’s $71.5 billion merger with Norfolk Southern is likely to attract heavy regulatory scrutiny. While CSX hasn’t announced any specific talks, CEO Joseph Hinrichs said in July that there are many opportunities related to a possible merger and it was “open to talking about all those possibilities.”

What’s Next: Ancora has about $10.5 billion of assets under management and was also an activist in Norfolk Southern. Its stake in CSX is about $100 million, according to The Wall Street Journal, which first reported the letter. But it said in its letter that the stake is still growing.

— Anita Hamilton and Liz Moyer

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Fed’s July Minutes Could Show How Deep the Divisions Run

Investors don’t have to wait until Federal Reserve Chair Jerome Powell’s Jackson Hole speech on Friday for clues about the central bank’s next move. The minutes for the Fed’s July meeting are due out later today and may offer an early read on whether officials will cut rates in September.

• The July meeting was notable for the first dual dissent from sitting Fed governors in more than three decades. Michelle Bowman and Christopher Waller voted to cut rates by a quarter point, instead of keeping them steady. The 9-2 vote marked the first time since 1993 that multiple governors dissented.
• Both Bowman and Waller have since defended their positions in separate statements. Waller said he favors gradual rate cuts of up to 1.5 percentage points, arguing the current wait and see approach is overly cautious. Bowman has said tariff-driven price increases are a one-off shock that shouldn’t prevent easing.
• The minutes may reveal how other officials responded to the dissenters and provide more detail on the committee’s views about inflation, tariffs, and a weakening labor market. Investors see an 85% chance of a September cut, the CME FedWatch tool said.
• President Donald Trump has sustained pressure on Powell to cut rates. In a social media post late Tuesday, Trump said Powell’s inaction on rates was hurting the housing industry because people can’t get mortgages. He said every sign is pointing to a major rate cut.

What’s Next: Housing starts jumped 12.9% in July over a year ago, more than expected and mostly boosted by multifamily unit construction. Home builder Toll Brothers beat third-quarter expectations and said that while affordability pressures persist, its more affluent customers have been resilient.

—Nicole Goodkind and Liz Moyer

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S&P Global Says Tariff Revenue Can Offset Trump’s Tax Plan

S&P Global Ratings said the billions in revenue that have been generated by President Trump’s tariffs likely would offset some of the deficit increases from his tax and spending plan that was enacted this summer. As such, the ratings firm kept an AA+ credit rating for the world’s largest economy.

• S&P Global said that although Trump’s signature tax and spending plan will increase U.S. debt and deficit levels, there won’t be a “persistent deterioration” over the next several years. Changing domestic and international policies “won’t weigh on the resilience and diversity of the U.S. economy,” it said.
• Moody’s Investors Service, which lowered its triple-A rating on U.S. debt to Aa1 in May, expects larger deficits over the next decade as entitlement spending rises while government revenue stays flat. S&P Global said that if already-high deficits increase, it could lower its AA+ rating.
• The Committee for a Responsible Federal Budget expects a significant net revenue gain of $2.8 trillion by 2034 from the president’s myriad tariffs. The Congressional Budget Office, meanwhile, expects Trump’s tax plan to add $5 trillion to overall U.S. debt by that time.
• Retail earnings may reveal early tariff effects. Billy Bastek, Home Depot’s executive vice president of merchandising, noted that tariff rates are “significantly higher” for imported items such as garden products and chemicals, prompting the company to be “a little less promotional” and impose some “modest price increases.”

What’s Next: The U.S. Court of Appeals for the Federal Circuit is expected to rule in the coming weeks on a case brought by several Democratic-led states, as well as five small businesses, challenging the president’s use of emergency powers to impose import tariffs. The case could go to the Supreme Court.

— Martin Baccardax and Janet H. Cho

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Chipotle’s Latest Rewards Promotion Aims at College Crowd

Chipotle Mexican Grill, battling a drop in same-store sales, is appealing to college students with a new rewards program to give them points toward free burritos or other food. The promotion includes limited-edition Chipotle-themed dorm décor that goes on sale starting today online or at Urban Outfitters stores.

• Restaurants are leaning on rewards programs to drive same-store sales. Chipotle ramped up promotions after its second-quarter same-store sales fell 4%. McDonald’s increased its same-store sales by 2.5% after introducing menu items like McCrispy Chicken strips, Snack Wraps, and $5 Meal Deals.
• McDonald’s found that loyalty program members visit more than twice as often as nonmembers. Part of the loyalty program push addresses how consumers are struggling with the rising cost of dining out. Lightspeed Commerce found that 44% of adults have ordered lower-cost kids’ meals for themselves.
• Students who join Chipotle Rewards and validate their college enrollment start with 1,000 bonus points. They earn another 12 points for every $1 spent at Chipotle, and with “special offers” tied to unspecified college milestones. Dorm décor purchases don’t count toward Rewards points.
• Chipotle worked with Urban Outfitters to design dorm room décor inspired by its menu offerings, including a $99 throw blanket that looks like a foil-wrapped burrito, and a $59 desk light that resembles a bag of Chipotle tortilla chips.

What’s Next: McDonald’s is offering an adult version of the Happy Meal, including a Quarter Pounder with Cheese or a 10-piece Chicken McNuggets, fries, and a Mt. McDonaldland shake. It even comes with a toy, or what McDonald’s calls “a first-of-its-kind collectible souvenir.”

— Janet H. Cho

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Dear Quentin,

I started thinking about retirement about 42 years ago when I opened my first IRA at 23. Since then, I have had some good years and lean years. I am now within a year of retiring at 66. It strikes me that the “rule” of needing 80% of your income replaced by asset withdrawals doesn’t necessarily apply for high earners.

For the last six years, I have earned $1 million to $1.4 million annually, but have no ongoing need to spend even a quarter of that. I have $1.1 million in IRA/401(k) assets. I will also have $2.5 million expected from liquidating my business interests and $2.1 million in real-estate net equity ($550,000 in 4% mortgages on both of them), $275,000 of emergency cash and no debt.

My wife has about $350,000 in 401(k)/IRA assets and $250,000 in taxable investments. We anticipate between $1 million and $1.5 million in additional inheritance within five years. In 2028 and 2029, I will have no earned income or Social Security. Social Security could kick in at 70, starting at $58,000 annually; my wife’s Social Security could start at 62 with $30,000.

Yes, I consider myself pretty lucky.

I will be comfortable spending $250,000 annually on more than $4 million in investments plus Social Security. Homes, insurance, travel, cars, taxes, and healthcare are the biggest anticipated expenses. I imagine between 40% and 70% equity allocation would be appropriate. I am considering a dual-life annuity for a fixed income substitute.

I also have other questions: 1) Do I pay off my 4% mortgages instead of investing my cash? 2) Do I play it safe and buy an annuity for maximum income (especially if Social Security is diminished)? 3) Do I defer 401(k) withdrawals to age 73 and hit my taxable accounts harder until then? Maybe I should start Social Security at 68 instead of 70? I hope to ensure sufficient income, inflation protection and a legacy for my children.

— Somewhat Confident

Read the Moneyist’s response here.

— Quentin Fottrell

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