[New York Stock Exchange] Tech Stock Rally Ends in a Day on AI Overvaluation Concerns... Nasdaq Plunges 2%

Valuation Concerns Rise After Palantir Earnings
S&P 500 Forward PER Hits 23x, Highest Since 2000
Wall Street Titans Like Solomon and Pick Warn of 10?20% Correction
Federal Government Shutdown Poised to Set New Record at Midnight
December Rate

All three major indices on the New York Stock Exchange closed lower on November 5 (local time). Despite Palantir announcing a surprise earnings report the previous day, investors sold off stocks due to concerns about the overvaluation of artificial intelligence (AI)-related shares. The rally fueled by AI optimism was quickly dampened by overvaluation worries, leading to increased market volatility. Additionally, the possibility of a prolonged U.S. federal government shutdown and internal disagreements within the Federal Reserve over interest rate cuts further weighed on investor sentiment.

Reuters Yonhap News

On this day, the blue-chip Dow Jones Industrial Average closed at 47,085.24, down 251.44 points (0.53%) from the previous trading day. The S&P 500, which focuses on large-cap stocks, fell 80.42 points (1.17%) to 6,771.54, while the tech-heavy Nasdaq plummeted 486.087 points (2.04%) to close at 23,348.637.

By stock, Palantir dropped 7.95%. Although the company reported better-than-expected earnings, it failed to provide full-year guidance for 2026, leading to disappointment-driven selling. As a result, concerns about the valuation of AI-related stocks spread across the market. Oracle fell 3.75%, while Nvidia and AMD declined by 3.96% and 3.7%, respectively.

The AI rally continues, but so do concerns about valuations. Palantir's share price has soared 150% so far this year, and its forward price-to-earnings ratio (PER) exceeds 200 times. Oracle's forward PER is also around 35 times. According to financial data provider FactSet, the surge in AI stocks has pushed the S&P 500's forward PER above 23 times, approaching the highest level since 2000.

Anthony Saglimbene, Chief Market Strategist at Ameriprise Financial, said, "Valuations have started to rise excessively," adding, "There has been no clear correction or pressure since last April. Earnings are strong, but investors are beginning to question whether profit growth over the next year can justify such investments, especially considering the capital expenditure pace of some big tech companies."

Adam Crisafulli, founder of Vital Knowledge, pointed out, "Our biggest complaint about U.S. stocks is that market participation is very fragmented," adding, "A handful of large technology stocks are leading the market and masking significant warning signals beneath the surface."

Wall Street heavyweights are also warning about valuation pressures.

David Solomon, CEO of Goldman Sachs, predicted the previous day, "There is a high probability that the stock market will decline by 10-20% over the next 12 to 24 months." Ted Pick, CEO of Morgan Stanley, also said, "We must accept the possibility of a 10-15% correction, not due to a macroeconomic shock but due to the overvaluation of the stock market."

Furthermore, the possibility of a prolonged U.S. federal government shutdown is weighing on the market. The current shutdown has lasted 35 days, and if it extends past midnight, it will break the previous record for the longest shutdown, which lasted from December 22, 2018, to January 25, 2019 (35 days).

Additionally, within the Federal Reserve, the gap between those favoring a rate hold and those supporting a rate cut for December is widening, weakening expectations for a rate cut. The market hopes the Fed will support stock prices and mitigate economic and employment slowdowns through rate cuts, but the future path for rates remains uncertain.

U.S. Treasury yields are declining. The 10-year U.S. Treasury yield, a global benchmark, stands at 4.08%, while the 2-year yield, which is sensitive to monetary policy, is around 3.57%, each down 2 basis points (1bp = 0.01 percentage point) from the previous day.