It has been a dizzying week for US stock, to say the least. On Wednesday 4 November, the Dow soared almost 1,600 points in a post-midterm rally. But then, less than 24 hours later, the Nasdaq Composite plunged 5.5% and closed in correction territory, more than 10% below its 6 October ATH, while the Nasdaq 100 suffered its worst day since March 2020 as Nvidia sank 9.3%, erasing all of its YTD gains. The Magnificent Seven lost more than $1 trillion in market value in a single session, and the pain spread quickly to Asia, with South Korea’s Kospi sliding almost 9% at Friday’s (6 November) open. And yet now, the mood has shifted once more: CoreWeave’s outperformance eased investors’ fears about bloated AI spending, giving the stock a near 25% bump. Meanwhile, the S&P 500 is up around 1.6% at roughly 7,640, with the Nasdaq adding more than 2%. Despite all this, though, the S&P 500 is still up about 9.5% for the year, which just goes to show how much of this volatility is concentrated in one small corner of the market.
That corner is, of course, AI and its associated sub-sectors. Semiconductor ETFs are down almost 40% from their mid-2026 highs, which is bear-market territory by anyone’s yardstick, even though the broader indices are only in a moderate correction. The question investors are asking is whether this is the AI bubble finally bursting or a violent reset that some believe may be creating potential entry points.. The honest answer depends on two forces: whether the AI sell-off was an overreaction, and whether a Fed intent on raising rates again leaves enough room for high-growth valuations to recover. Neither has a definitive answer just yet, but we’ll do our best to assess all the key factors shaping the story below.
Fear, fundamentals, and feverish overreactions
The November AI sell-off had several triggers, and according to market commentary, none was a collapse in demand. Investors feared that Democratic gains in Congress could slow the data-centre development, while questions about the cost, financing and eventual returns of AI infrastructure were compounded by a weak forecast from Qualcomm. Governance concerns around Nvidia’s CEO added to the nerves, and chipmaker’s shares are now down around 25% from their peak a month ago. The speed of the move is also less unexpected than it might first appear. By CNN’s count, the Nasdaq has closed in correction in March, hit records in June, and nearly corrected again in late July only to go on and make new highs in September and October. It’s been a year of violent drawdowns and recoveries that has seen the AI trade repeatedly been written off and subsequently revived. Many Wall Street analysts are arguing that this is another such episode. Morgan Stanley and UBS have suggested that the bottom has already been reached, positing that extreme regulation of data centres is unlikely, with Morgan Stanley expecting some project delays rather than total cancellations and recommending “buying the drop”. And this is a narrative that is repeated by other major investment funds: Goldman Sachs has called chips oversold and estimates that, even with no earnings growth in 2028, Nvidia would trade at about 12 times earnings and Broadcom at about 13 times. Today’s (11 November) evidence points the same way. CoreWeave reported record third-quarter revenue of $3.66 billion, up 168% year-on-year, and raised its 2026 revenue forecast to $13–13.3 billion, while Micron jumped 11.7% in response to the news. Naturally, none of this means AI isn’t without its risks. Financing costs for debt-fuelled AI infrastructure are climbing, and a dip can always deepen before it reverses. But for investors with a long-term horizon, a sector that has been repriced by 25–40% while its customers are still raising spending forecasts is exactly the sort of disconnect that could present a good buying opportunity.
Hot CPI, a looming hike, and a calendar crammed with catalysts
The more stubborn challenge is not AI itself but rather the Federal Reserve. On Tuesday (10 November), the October CPI came in at 0.4% amid forecasts of 0.3%, with core inflation at 0.3% against the expected 0.2%. At the regulator’s last meeting, Fed Governor Christopher Waller said a hot print could lead him to advocate for a half-point hike in December. The bond market reacted fast, with the 2-year yield jumping 17 basis points, its biggest one-day move since April 2025. At the same time, the 10-year climbed back to 5%, with futures now pricing roughly a 90% chance of a quarter-point hike at the 8–9 December meeting. The S&P 500 slipped 0.4% to 7,521 and the Nasdaq fell 0.7%. For future-focused assets like growth and AI stocks, higher yields reduce the present value of unrealized earnings, which is why the two halves of this story are linked. Nearly all of a December hike is already priced in, however, so the market’s focus is shifting to whether the tightening cycle ends there or extends on into 2027. The calendar over the next three weeks should provide plenty of clarity. Producer prices are due on Friday and the Fed’s preferred PCE inflation gauge on 25 November, but the biggest single event is Nvidia’s earnings on 17 November, with data-centre revenue expected to grow more than 12% QoQ, alongside the anticipated IPO of AI lab Anthropic, which brokerages see as a key catalyst for the AI sector’s potential recovery. Strategists remain broadly constructive: Goldman Sachs maintains its year-end S&P 500 target of 8,000 and 8,700 over twelve months, both well above today’s level. Of course, targets are not guarantees, and a hawkish Fed combined with ongoing investor caution on AI could easily produce more turbulence before any recovery. For investors comfortable with volatility, this combination of lower valuations, solid underlying earnings and a catalyst-rich calendar may be of interest. However, there is no assurance that valuations will recover, and losses are possible.
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