New York Shaken by AI Fears: How Far Will the Tech Stock Correction Go?

On February 4 (local time; early Feb. 5 in Korea), U.S. equities closed mixed amid a steep sell-off in technology shares. The S&P 500 fell 0.5% to 6,882.72 and the Nasdaq dropped 1.5% to 22,904.58, while the Dow Jones Industrial Average edged up 0.5% to 49,501.30, hovering near all-time highs.

Macro data added to the market’s uncertainty. January’s ADP private payrolls rose by just 22,000—well below expectations—signaling a slowdown in hiring. At the same time, the ISM Services PMI held in expansion at 53.8, but its prices index climbed, stoking renewed inflation fears. Fed Governor Lisa Cook warned that “progress on disinflation has stalled” and underscored the need to maintain a restrictive policy stance to get inflation back to target, tempering hopes for imminent rate cuts.

What truly rattled investors, however, were earnings and AI-related risk perceptions. AMD plunged more than 17% despite beating estimates, as a lower-than-expected mix in data-center sales and disappointing guidance sparked selling across semiconductor and AI-linked names. Qualcomm also slumped about 9% after its revenue outlook fell short of consensus, and even software and cloud firms weakened amid fears that AI could erode their business models. In contrast, Eli Lilly jumped over 7% after significantly raising its sales forecast for obesity treatments, underscoring healthcare’s defensive appeal.

Globally, software and IT-focused selling spilled into Europe’s DAX and Asian markets, heightening volatility across risk assets. Meanwhile, gold rallied back above $5,000 per ounce, highlighting safe-haven demand. Investors now face a confluence of four key forces—slowing employment, resilient services, a hawkish Fed and AI-driven valuation resets in growth stocks. In the near term, it may be prudent to dial back exposure to big tech and semiconductors and boost allocations in defensive and value sectors with clearer earnings visibility to navigate heightened volatility.