Global Markets React to AI Valuation Concerns

November 5, 2025 at 19:53 UTC

4 min read

Tech stocks decline visualization with AI valuation concerns and market selloff indicators

Key Points

The Monetary Authority of Singapore warns that AI and tech company valuations are highly stretched, with opaque financing structures increasing risk.
Global equity markets, especially in tech and AI sectors, have experienced sharp selloffs despite strong corporate earnings reports.
Major AI-linked stocks such as Palantir, Nvidia, and SoftBank have seen significant price declines amid profit-taking and bearish bets by notable investors.
Analysts caution that while AI-driven growth remains promising, current valuations may not be sustainable without clear productivity gains and improved fundamentals.

Regulatory Warnings on AI Sector Valuations

The Monetary Authority of Singapore (MAS) has issued a cautionary statement highlighting that technology and artificial intelligence companies are trading at inflated valuations. In its annual Financial Stability Review, MAS noted that equity markets show "relatively stretched valuations concentrated in the technology and AI sectors," driven largely by investments linked to AI. The regulator expressed concern that some large technology firms, particularly hyperscalers, are utilizing complex and potentially circular private financing arrangements, including special purpose vehicles and private credit structures, which may obscure leverage and amplify financial risks. MAS emphasized that these novel accounting treatments could mask true funding dependencies, raising systemic concerns. The rapid growth in the AI industry has seen valuations soar, with OpenAI reaching a $500 billion valuation and targeting $1 trillion ahead of a possible 2026 IPO, while Anthropic's valuation nearly tripled from $60 billion to $170 billion since March. Industry experts acknowledge that while AI technology is advancing, the current market exuberance may be outpacing fundamental financial metrics, prompting comparisons to the late-1990s dot-com bubble.

Market Selloff Amidst Strong Earnings and Valuation Anxiety

Despite one of the strongest earnings seasons on record, with 72% of S&P 500 companies reporting and earnings per share (EPS) beating estimates by 10.5%, global markets have experienced significant selloffs, particularly in AI and technology stocks. Companies such as Palantir Technologies, Amazon, Alphabet, and Microsoft posted robust earnings growth, with the tech sector alone showing a 25.3% year-over-year increase. However, stocks like Palantir fell nearly 8% following earnings, and Nvidia declined about 4%, reflecting investor concerns that these stocks were priced for perfection. The Shiller CAPE ratio, a long-term valuation metric, recently reached 40.95, the highest since the dot-com peak in 1999, signaling potential overvaluation. Analysts suggest that while earnings are strong, the market's elevated valuations leave little room for error, and the rally's foundation has narrowed to a few tech giants, increasing vulnerability to any setbacks in the AI growth narrative.

Global Impact: Asian Markets and Major AI Investors Face Pressure

The selloff in AI-related stocks has extended globally, with Asian markets notably affected. Japan's Nikkei 225 Index dropped as much as 4.7%, led by declines in chip test provider Advantest, which fell 11%. South Korea's Kospi index plunged over 6%, with major memory chip manufacturers Samsung Electronics and SK Hynix falling 8.2% and 9.5%, respectively. Taiwan Semiconductor Manufacturing Company (TSMC) also declined by approximately 3%. SoftBank Group, a significant investor in AI infrastructure and technology companies including Arm Holdings and Ampere Computing, saw its shares plummet over 10%, erasing about $23 billion in market value in a single day. This broad-based decline reflects growing investor apprehension about the sustainability of AI-driven valuations and the potential for a market correction. The selloff was further intensified by disclosures from hedge fund manager Michael Burry, who took bearish positions against Nvidia and Palantir, adding to the negative sentiment.

Investor Sentiment and Outlook Amid AI Valuation Concerns

Market participants and analysts emphasize caution but advise against panic amid the recent volatility. The rapid ascent of AI stocks, including Nvidia's rise to become the most valuable company globally, has been accompanied by profit-taking and repositioning rather than a wholesale loss of confidence in AI's long-term potential. Some investors view the current pullback as a 'brief breather' necessary for the market to digest prior gains. However, concerns remain that without tangible productivity gains and clearer unit economics, many AI companies could face financial exposure if their revenue growth does not materialize as expected. The Federal Reserve's uncertain policy path, compounded by a government shutdown limiting economic data flow, adds to market ambiguity. Analysts note that while the AI-driven capital expenditure cycle continues, with hyperscalers investing heavily in data centers, stretched valuations and unresolved issues such as intellectual property rights and opaque financing structures could weigh on future profitability and investor confidence.

Key Takeaways

AI and technology sector valuations are currently elevated, with regulatory bodies warning of potential risks from opaque financing and stretched market prices.
Strong corporate earnings have not prevented a market selloff, as investors reassess the sustainability of high valuations amid narrowing leadership in tech stocks.
Global markets, especially in Asia, have been significantly impacted by declines in major AI-linked companies and investor profit-taking.
While AI remains a promising growth area, the market may require clearer evidence of productivity gains and improved financial fundamentals to sustain current valuation levels.