U.S. stocks declined on Tuesday as weakness in artificial intelligence-related names, including Palantir, dragged markets lower amid growing concerns about stretched valuations in the year’s leading tech rally.
The S&P 500 fell 1.17% to close at 6,771.55, while the Nasdaq Composite dropped 2.04% to 23,348.64. The Dow Jones Industrial Average slipped 251.44 points, or 0.53%, finishing at 47,085.24.
Palantir tumbled about 8%, despite topping Wall Street estimates and issuing upbeat guidance driven by its expanding AI business. The stock — up more than 150% in 2025 — now trades at over 200 times forward earnings, reflecting lofty expectations for continued revenue and profit growth.
Other major AI-linked stocks also came under pressure. Oracle dropped nearly 4%, trimming its roughly 50% year-to-date gain, while AMD slid almost 4% after more than doubling this year. Nvidia and Amazon declined as well.
The surge in AI valuations has lifted the S&P 500’s forward P/E ratio above 23, near its highest level since 2000, according to FactSet. As these stocks propel broader indexes to new highs, Anthony Saglimbene, chief market strategist at Ameriprise, warned that valuations are becoming “really stretched” without a meaningful pullback.
“We haven’t seen a major correction or real pressure on stocks since April,” Saglimbene noted. “Profits are solid, but investors are now questioning whether Big Tech’s heavy capital spending will translate into enough profit growth over the next year to justify these valuations.”
Adding to investor caution, comments from major bank executives reinforced expectations for a market cooldown. Goldman Sachs CEO David Solomon said it’s “likely there’ll be a 10% to 20% drawdown in equity markets sometime in the next 12 to 24 months,” while Morgan Stanley CEO Ted Pick remarked that investors should “welcome” potential 10–15% corrections not driven by macro shocks.
Saglimbene added that while fundamentals remain strong, short-term volatility or a moderate correction — between 5% and 15% — could occur before year-end.
The market’s weakness followed a mixed session Monday, when the S&P 500 and Nasdaq rose but the Dow lost over 200 points. Breadth remains a concern, with more than 300 S&P 500 components finishing lower in the previous session and tech names dominating gains.
“Market breadth has been very narrow in recent months,” Saglimbene said. “If AI and tech momentum slows, there aren’t many other sectors showing comparable strength. Without clearer economic data and stronger profits across the broader index, investors may find limited places to turn.”
