Technology stocks have dropped 5.6% since their peak, but are still up 22% for the year. Concerns over AI stock sustainability have led to this decline, with investors reassessing risk appetite due to high valuations. Nvidia fell 9.1% last week despite strong earnings reports from Meta Platforms, Alphabet, and Amazon.

The broader market has also seen a 2.2% drop since October’s peak, with high-flying AI tech stocks experiencing even larger declines. Some experts suggest that the sector may not meet investors’ high expectations for returns and earnings growth. Strong earnings and guidance haven’t been enough to prevent recent stock sell-offs, indicating over-optimism in pricing.

Tech stocks, particularly AI-related names, have surged this year and since April, but concerns about the AI trade have been growing. While major tech firms are investing heavily in AI infrastructure, the profitability for investors remains uncertain. Experts are cautious about the future returns on these investments and the timeline for adoption by companies.

Despite last week’s tech stock decline signaling skepticism over AI and valuation concerns, experts believe the market is taking a breather to reassess expectations. Speculative tech names have been faltering, while core technology stocks have continued to rise. The recent weakness extended to core names like Nvidia, Oracle, and Meta.

While last week’s selloff was attributed to stretched valuations, experts believe that the fundamental strength of tech remains intact. The investment in AI still holds promise, but the market may have priced in too much optimism for AI stocks. Tech is expected to continue performing well, although the risk of AI investment disappointment remains.

Experts are monitoring speculative stocks for further weakness, which could signal more pain ahead for the market. Despite concerns over AI investment outcomes, tech sector earnings are still viewed favorably. Investors are advised to remain cautious and evaluate risk appetite in the tech sector. Technology stocks have dropped 5.6% since their recent peak, but are still up 22.0% since the beginning of the year. This decline is due to concerns about the sustainability of the AI stock surge. With stretched valuations, investors are reassessing their risk tolerance.

In other news, the latest job report shows 400,000 new jobs were added last month, exceeding expectations. However, the unemployment rate remains at 5.9%. Economists say this indicates a strong recovery, but there are still challenges ahead.

Meanwhile, the housing market continues to boom, with home prices increasing by 15% compared to last year. Low mortgage rates and high demand are driving this trend, but experts warn of a potential bubble forming. Despite this, sales remain strong as buyers rush to take advantage of the market.

Lastly, the Federal Reserve is closely monitoring inflation rates, which have risen by 3.6% in the past year. This is the highest increase since 2008, prompting concerns about overheating. The Fed is considering tightening monetary policy to prevent further inflation, which could impact the stock market and economic growth.

Read more at Morningstar UK: Why Tech Stocks Have Been Falling