Tech leads Nasdaq’s stock slips

In the trading session on Tuesday, and Wednesday, a selling pressure in tech stocks intensified, and prompted investors to reassess high-valuation names. On February 3, 2026, the Nasdaq Composite Index was down by more than 330 points, or more than 1.4 per cent. The same trend repeated on February 4, and the index was down by 1.5 per cent. In the past five trading sessions, the tech index is down by more than 900 points, or nearly four per cent. Analysts attribute the tech-led weakness to a combination of valuation concerns, shifting views on Artificial Intelligence (AI), and profit-taking after a prolonged rally. Tech stocks trade at historically elevated multiples, leaving little room for disappointment once earnings expectations are fully priced in. As sentiment softened, richly-valued names came under pressure, reflected in the sharp underperformance of software-focused indices. For example, iShares Expanded Tech-Software Sector ETF fell 5.7 per cent, amid skepticism about the software landscape.

At the same time, investors wish to reassess the near-term monetisation potential of AI, as new tools automate functions that were once delivered through paid software services. These raise questions about how traditional revenue models, particularly in analytics and enterprise software, will adapt. This coincides with a bout of profit-taking in tech stocks, especially those linked to AI, with capital rotating toward sectors offering more stable near-term earnings or defensive characteristics. This was seen in flows into commodity and defensive assets. While it was not the focus, benchmark gold prices, often a safe-haven indicator, rose modestly to near $2,090 per ounce, and silver climbed roughly 1 per cent, highlighting moves toward perceived safety. The CBOE Volatility Index (VIX) ticked higher, signaling elevated market uncertainty, though it remained below levels typical of systemic stress. Bitcoin and broader crypto markets were slightly lower, which suggests that they were being repriced. The world is in a churn.

Despite the sharp moves in tech stocks, broader indicators do not suggest a systemic collapse. The S&P 500, while lower, remains close to recent record territory, and credit markets, liquidity measures, and macroeconomic data have not shown signs of widespread stress. Historically, the Nasdaq has weathered multiple corrections even as the broader economy and markets remain stable, a pattern repeated after periods of concentrated gains. A market “correction” is typically defined as a decline of 10 per cent or more from recent peaks. Even with the recent slide in tech, major indices have yet to breach these thresholds. While this may be the case, the moves signal that investors are looking at how to factor future growth and profits into existing stock prices, particularly those tied to AI products and services. Traders and institutions may trim positions in firms whose earnings horizons are far off, and choose those with predictable near-term cash flows.

This episode reflects classic profit-taking after a strong rally. When stocks lead markets for extended periods, profit-booking is a natural outflow. At the same time, it does not signal financial instability or an imminent downturn. US consumer spending remains resilient, corporate earnings forecasts have not been systematically downgraded, and macro indicators have not trended toward recession. Core jobs data, inflation measures, and consumer confidence indices, backdrop against which market price risks, reflect stability rather than stress. As markets digest these shifts, several plausible scenarios may unfold. One scenario is a rebound if the upcoming earnings reports from major tech firms provide stronger visibility into revenue growth and AI prospects. Alphabet, Amazon, Microsoft, and Nvidia are among those whose results and forward guidance can reset sentiments if they beat forecasts. Investors will wait for these signals, which may trigger further sell-off, and the backing out of the bears.

A second scenario involves rotation and consolidation, whereby tech stocks trade in a broader range as valuations reset to historical levels. In this view, profits will flow toward defensive sectors, value stocks, and industries with immediate cash flows, while growth equities consolidate before making a fresh attempt at heading higher. A third, more bearish, scenario will require evidence of slowing demand in core tech sectors or disappointing guidance from corporate earnings. If spending softens or firms highlight margin pressures tied to competition or broader economic concerns, the sell-off may deepen and broaden into other equity sectors. In the recent past, when PayPal’s earnings and forecast missed estimates, its stock tumbled over 20 per cent “against a background of an exodus from software stocks.” But, as one analyst said, investors are “running away from a fortune.” The numbers, he maintained, “show a cash-generating machine that is effectively buying itself back at a discount.” As he explained, “After the blackout period ends, the weak sisters will be selling, PayPal will be buying.”

Software faces the tech fallout, according to a few media reports. On Tuesday, the S&P 500 software and services index fell nearly four per cent, and a further nearly 0.75 per cent, and notched up the sixth straight session of losses. According to a report, the losses wiped out nearly $830 billion since January 28, 2026. The AI factors have moved from being tailwinds to possible disruptions, and the “latest sell-off was triggered by a new legal tool from Anthropic’s Claude large-language model.” People worry that this tool can wreak havoc across segments from finance to law and coding. This can hurt businesses, and reminds investors of how Amazon destroyed several industries. Some analysts contend that the current sell-off is an extension of a trend that started last quarter, and “is a manifestation of an awakening to the disruptive power of AI.” He adds, “The seemingly-wide moats of these firms feel a lot narrow today as competition from AI products intensifies.”

According to other experts, investors have decided, at least for the moment, to bet on infra firms, and model developers, rather than software ones, which are seen as mid-term losers even if their businesses seem strong. But, as is evident, “chaos creates opportunity.” If one can make the right bets, even among the players that may be on the losing side, but survive in the long run, there may be huge amounts to make. Remember the churn in the Internet firms during the 1990s, and early 200s, especially after the tech stock shock at the turn of the century. Many names vanished in a blip. Others struggled to survive, and painfully lingered on. A few survived, thrived, and rode to the pinnacle of power. Some of them were not the pioneers, or innovators, but mere followers. Investors need to reflect, and determine who can be the winners this time, the next Google or Amazon.