Dow closes down nearly 500 points as AI bubble fears hammer stocks

Stocks closed markedly lower on Tuesday as fears of a bubble in artificial intelligence technology hammered markets for a fourth consecutive trading day.

The Dow Jones Industrial Average dropped 498 points, or 1%, while the S&P 500 fell 0.8%. The tech-heavy Nasdaq tumbled 1.2%.

The selloff, which has touched some of the world’s largest companies, marks a rare bout of turbulence on this year’s glide path to higher returns.

In recent days, many investors have raised alarms about tech companies dependent on AI. As big-tech names spend hundreds of billions to build data centers necessary to run the energy-intensive technology, the financial benefits remain uncertain.

“Tech companies have to spend to keep up with surging demand, but that demand largely hasn’t turned into profits or productivity,” Callie Cox, chief market strategist at Ritholtz Wealth Management, told clients in a memo on Tuesday. “Investors get skeptical about the payoff.”

Still, Cox added: “AI will likely pay off in economic benefits down the road, but those who are overexposed to tech in their portfolios have to ride out this phase of selling.”

The Nasdaq plummeted 3% last week, the index’s largest weekly decline since the aftermath of President Donald Trump’s “Liberation Day” tariffs in April. The S&P 500 ended three consecutive weeks of gains.

Market gains this year have been concentrated in a handful of tech giants, known as the magnificent seven: Alphabet, Amazon, Apple, Meta, Microsoft, Tesla and Nvidia. Worries over artificial intelligence have thrown cold water on the stocks in recent days, causing their prices to waver.

Shares of Nvidia have dropped nearly 9% since late October, including a slight decline on Tuesday. Meta has declined 17% over the past month.

Even after recent losses, the S&P 500 remains up 13% in 2025. While the Dow Jones Industrial Average has climbed 8%, and the Nasdaq has soared 17%.