The powerful artificial intelligence-driven stock market rally suffered a major setback on Monday as investors sold technology shares amid concerns that valuations had become overheated.

Asian markets led the decline, with technology and semiconductor stocks experiencing some of their steepest losses in months.

The sell-off followed weaker-than-expected guidance from chipmaker Broadcom and stronger U.S. employment data, which increased expectations that the U.S. Federal Reserve could raise interest rates later this year.

Higher rates typically reduce the appeal of high-growth technology stocks.

Market sentiment deteriorated rapidly as investors locked in profits from companies that had benefited enormously from the global AI boom.

The downturn spread across major markets, dragging broader indexes lower and highlighting growing concerns that the sector’s rapid rise may have outpaced underlying fundamentals.

Despite the sell-off, many analysts remain optimistic about the long-term outlook for artificial intelligence.

One strategist described the downturn as a “healthy correction” rather than the end of the AI trade, noting that demand for AI infrastructure and advanced chips remains strong.

“The AI trade is still intact,” market analysts told Reuters, arguing that the current decline reflects profit-taking and valuation concerns rather than weakening demand for AI technologies.

Source: Reuters.