Is the AI-led rally over? NASDAQ plunges 4.1% amid sharp selloff in tech stocks; here is why

The US markets witnessed a close in red across the board with a sharp plunge in the tech-heavy NASDAQ index, which fell the most after April 2025. The index dropped 4.1% on Friday amid concerns about overheating in the tech stocks. Following the NASDAQ index, the S&P 500 fell 2.1%, and the Dow Jones slipped off 1.4% after touching a fresh record high on Friday.

What triggered the rout in tech stocks?

Among all the profit booking narratives in the tech stocks, the real trigger for the rout came from Broadcom earnings. Broadcom, one of the world’s leading tech companies, posted robust performance in its quarterly earnings. The company’s revenue for the quarter ending January-March rose over 48% YoY at $22.19 billion. The revenue from chip sales jumped 143% to $10.8 billion. The company also guided for 84% jump in revenue for the Q3 at $29.4 billion. However, the guidance provided for the coming quarter fell short of analyst estimates of $30 billion. Additionally, for FY27, the company maintained its $100 billion revenue target, instead of raising it further. The key takeaway is that market expectations have run past the corporate growth estimates, which indicates that market pricing for the tech stocks has also run past their fundamental growth estimates.

Hence, despite the robust quarterly earnings growth, the shares of Broadcom fell nearly 20% in two trading sessions. The runoff effect of the flat guidance by Broadcom was also seen across tech stocks, as their shares too witnessed a sharp plunge on Friday. Shares of Micron, Marvell Technologies, Intel Inc and AMD all fell over 11% on Friday. Similarly, shares of NVIDIA, Microsoft, Amazon, Meta, and fell 2% to 6% in a broader selloff in the market.

After Google, Meta plans to raise cash via an equity offering

Media reports indicated that Meta Platforms, owner of Facebook, Instagram and WhatsApp, intends to raise cash via equity offerings. The news, which is yet to be officially confirmed, sent jitters to investors as big-tech giants plan to spend billions of dollars on AI infrastructure in the coming year. Last week, Google’s parent company, Alphabet Inc., also announced raising $80 billion through an equity offering, which soured investor sentiments, as the stock plunged over 5% after the news broke.

Investors remain cautious on the mega capex announcements by the tech companies on AI infrastructure, as they fail to witness an evident return on investment on the AI investments. However, companies remain buoyant on the AI capex investments as they foresee unprecedented demand in AI computing.

Making space for mega IPOs

The US markets are getting ready for mega IPOs in the coming months, starting with SpaceX on June 11. The Elon Musk-led company will list on the US bourses as the world’s biggest IPO with a $1.75 trillion valuation, raising $75 billion through public markets. The IPO has rolled the eyes of every US investor, prompting them to book some profits from their euphoric gains in tech stocks like NVDIA, AMD, Micron, Broadcom, etc. Additionally, it has also prompted index funds to liquidate some of their exposure as the company will make an entry into the NASDAQ 100 and FTSE Russel index soon after listing. Hence, passive funds are required to rebalance their existing holding to make way for SpaceX. Alongside this, the funds will also have to rebalance ahead of the other mega IPOs of Anthropic and OpenAI, which are on their way to listing.

Stronger than expected Jobs data

Among all sector-focused factors, the stronger-than-expected Jobs data also stoked investor hopes for rate cuts. The US economy added 172,000 jobs in May, exceeding the market expectations of 85,000. The strong labour data boosted the rally in US treasury yields as the US 10Y yield crossed 4.5% mark and the US 30Y yields crossed 5% mark on Friday. The sharp spike in bond yields is also one of the major contributing factors to the current market rout in the US markets.