Nasdaq 100 Suffers Worst Quarter in Years Amid AI Bubble Fears

Nasdaq 100's Dramatic Decline

The Nasdaq 100, a tech-heavy benchmark, has posted its worst quarter in nearly three years, plummeting 8.3% amid growing fears of an artificial intelligence (AI) bubble 1

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. This decline comes in a quarter already marred by tariff uncertainties, U.S. government spending cuts, and recession threats 2

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AI Bubble Concerns

The latest blow to the Nasdaq 100 stems from warnings about a potential pullback in the hundreds of billions of dollars flowing into data center infrastructure. These concerns have reignited anxieties about an AI bubble, leading to renewed selling that has stamped out a nascent rebound 3

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Tech Giants Take a Hit

Major tech companies, which had been driving the market's growth, have seen significant declines:

• Nvidia Corp: Down 28% from its January peak
• Broadcom Inc: Down 33% from its December record
• Microsoft Corp, Amazon.com Inc, Alphabet Inc, and Meta Platforms Inc: All down 20% or more from their records 2

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Valuation Concerns

Despite the recent selloff, valuations remain elevated:

• The Nasdaq 100's average valuation has fallen to 24 times estimated profits, down from 27 times last month
• However, this is still above the two-decade average of 20 times 3

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Triggers for AI Concerns

Two key events sparked the latest round of AI-related worries:

1. Alibaba's co-founder warned that the rush to build new facilities is outpacing demand for AI services
2. An analyst report suggested Microsoft, which has allocated $80 billion for data center spending this year, is walking away from new projects in the U.S. and Europe due to oversupply 2

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Impact on AI-Related Stocks

The selloff has had significant implications for companies benefiting from AI investments:

• Nvidia's pricing at 23 times expected profits over the next 12 months is now considered "defensive" by some analysts
• CoreWeave Inc., an Nvidia-backed AI computing services provider, saw a disappointing IPO with shares falling about 7% since the offering 3

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Future Outlook

Despite the current gloom, some bulls remain optimistic:

• OpenAI is reportedly expecting to triple its revenues this year
• The company is in talks to raise up to $40 billion from investors including SoftBank Group Corp

However, the prevailing sentiment on Wall Street remains cautious, with investors nervous about a potential slowdown in AI spending 2

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