Global Stocks Slide on Valuation Concerns Before Nvidia Earnings

Global equities experienced a broad sell-off on Tuesday, reflecting investor anxiety surrounding potentially inflated valuations and broader macroeconomic uncertainties. The downturn comes as the market keenly awaits Nvidia’s earnings report, scheduled for release after Wednesday’s closing bell. The chipmaker’s performance is widely regarded as a crucial indicator of the overall health and future prospects of the artificial intelligence sector.

European markets mirrored the global trend, with the pan-European Stoxx 600 opening in negative territory. Mining stocks and banks bore the brunt of the losses. The Stoxx Europe 600 Technology Index declined by 1.4%, echoing the performance of U.S. tech stocks amid persistent concerns about an AI-fueled bubble. Market participants are increasingly scrutinizing the sustainability of current valuations, particularly within the technology sector, given the rapid advancements and substantial capital investments associated with AI development.

In the U.S., the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all concluded the previous trading session in the red. Asia-Pacific markets also registered declines, with Japan and South Korea’s benchmark indexes leading the downward trend.

Mike Gallagher, Director of Research at Continuum Economics, suggests that recent market activity implies a potential 5% correction from recent equity highs, or possibly even more. He characterized the sell-off as “natural profit taking” following a robust market rally that began in April, a sentiment reflecting a degree of market recalibration after a period of sustained gains.

The AI sector’s reliance on Nvidia’s GPUs positions the company as a key bellwether; its earnings will be parsed for signals about future growth prospects in AI infrastructure.

Gallagher pointed to recent earnings seasons, noting that large hyperscalers are still projecting substantial revenue streams through 2026-27. He emphasized the importance of observing Meta’s performance. Without a dedicated server business, Meta serves as an important gauge of whether the next wave of AI applications can effectively generate revenue. “That suggests this is just a routine, healthy correction,” he noted, implying a degree of confidence in the underlying strength of the AI landscape.

Yuri Khodjamirian, Chief Investment Officer at Tema ETF, attributed the sell-off to a “healthy dose of skepticism,” as the market grapples with the reality of funding the significant capital expenditures associated with recently announced “mega-deals.” He underscored the implications of OpenAI’s “massive announcements of commitments to spending on GPUs and power data centers,” arguing that “the market is starting to realize that this is going to maybe be a slower process than they thought in the summer.” This perspective highlights the intricate interplay between ambitious AI initiatives and the logistical and financial realities of bringing them to fruition.

“There is this kind of balancing going on in the market, and this is what you’re seeing in some of these shares. Oracle’s share price is back to where it was pre-the OpenAI announcement, so we think it’s reasonably healthy. The dynamics continue, these data center build outs, whether you listen to Microsoft, Meta, Nvidia, etc, they’re all going in the direction of upwards. Nothing’s really stopping, so what we’re seeing is just a healthy correction, in a way, in the marketplace,” Khodjamirian added, speaking on CNBC.

However, Gallagher also cautioned about a potential element of de-risking driven by broader macroeconomic uncertainties. In particular, he highlighted doubts about a previously anticipated Federal Reserve interest rate cut in December, suggesting that the central bank will now “probably” remain on pause through the first quarter of 2026. This shift in expectations may have implications on the overall risk appetite and investment strategies among market participants.

“Then, all of a sudden, that kind of driver that’s helped risk is no longer there. We’ve also got the Supreme Court in the U.S. due to judge on Trump’s reciprocal tariffs. It’s actually a 50-50 call, whether half of them or all of them are stopped, and that then gets us back into April’s cycle drama about new types of tariffs,” Gallagher explained, emphasizing that potential black swan events remain significant risks to investment portfolios.

“To get a major sell off, you may need major bad news, and that we haven’t actually got to that point yet,” Gallagher concluded, signaling that whilst current market volatility is notable, it is so far contained and does not necessarily presage a full-scale market crash.

Gallagher also raised the issue of exuberance fueled by leverage in cryptocurrencies. The recent volatility in Bitcoin and Ether reflects the challenges faced by that asset class in a shifting macroeconomic climate, adding another layer of complexity to the financial analysis.

Khodjamirian emphasized the importance of taking a multi-year view. One key concern he highlighted is the looming challenge of securing access to reliable electricity for data centers. “There’s a realization from executives around in the United States and in the world that you need to provide power to these data centers. That is going to be a big, big problem, and that potentially slows down the build out as more power needs to be built,” he warned, pointing towards a crucial infrastructure issue which could impact the pace of technology innovation.

“We think it’s the biggest problem and the biggest bottleneck for building out the AI revolution, but also other things like the rebuilding of the industrial base, both in Europe and in the United States, electric vehicles, digital currencies,” he concluded, hinting that these challenges extend across multiple strategic sectors, requiring the attention of both policy makers and business leaders.