AI keeps powering and pressuring the Nasdaq
Add Axios as your preferred source to
see more of our stories on Google.
The AI trade is getting investors used to a cycle of panic-driven selling followed by overly euphoric rallies followed by more panic.
The big picture: At first, AI made Wall Street's dreams come true, driving the S&P 500 higher by double digits three years in a row. Now, as AI threatens incumbent players and sectors (hi software), it's keeping traders up at night.
Catch up quick: The market's first major AI-driven sucker-punch came in January of 2025, when DeepSeek's open-source model exceeded investor expectations, calling into question the dominance of U.S. AI labs.
- In early April, all stocks were rattled when President Trump unveiled global sweeping tariffs.
- Come fall 2025, several tech companies reported massive spending plans, and investors got momentarily worried, sparking a selloff. But earnings growth and general euphoria around AI still drove the Nasdaq up 30% from its April bottom to its October 29 peak.
- January 2026 saw a slew of product announcements tanking various corners of the market. The launch of Claude Code — Anthropic's vibe-coding tool — led to a $1 trillion software selloff.
- By February, the AI scare trade had taken hold. Consumer staples stocks were more expensive than tech stocks by the time Nvidia reported its stellar results near the end of the reporting cycle.
Between the lines: It's narrative roulette.
- Investors have no idea what's going to happen with AI.
- They do know it's recently made them a lot of money, and trees can't grow to the sky.
- Cue panic selling every time the faintest AI headwind materializes, whether that's a product launch or a viral Substack.
What we're watching: How the second quarter of the year treats the AI trade.
- The first quarter of a year tends to include more rotation heading into tax season, so it can be less predictive.
The bottom line: Tech investors are not getting as much sleep as they used to.
