Tech stocks experienced volatility over the past week as investors withdrew from the artificial intelligence sector , which had seen a meteoric rise this year. In the field of AI, expectations for a December rate cut were also hit hard, and the U.S. economic outlook was reassessed after the longest government shutdown in history.
Despite the sharpest pullback in over a month, Wall Street strategists say it's more likely due to profit-taking and government shutdown-induced volatility than a genuine crack in artificial intelligence or earnings prospects.
Jeff Krumpelman, chief investment strategist and head of equities at Mariner Wealth Advisors, said long-term AI investors shouldn't panic. He explained, "We're kind of 'holding our ground.'"
The strategist emphasized that the early applications of artificial intelligence remain a strong multi-year theme, and the current volatility should not be confused with the rise and fall of something similar to the dot-com bubble.
“That’s true,” he said. “ We’re still in the early stages of artificial intelligence, that’s true. It’s not 2000 now.”
Krumpelman added that the stock market correction also revealed opportunities beyond the "large-cap leaders." Software companies that lagged behind in this year's AI hardware boom are now looking increasingly attractive.
“Companies like ServiceNow… are down 20% this year. They haven’t been this cheap in a long time,” he said, adding that the firm believes “ cybersecurity is a strong performer outside of the Big Seven tech stocks.” There are still many opportunities in this field.
Key advantages
There are widespread concerns that the current bull market in US stocks relies too heavily on tech giants, posing a risk. However, two fund managers who manage hundreds of billions of dollars in investor funds recently pointed out that they remain optimistic about the development of the US technology sector and the massive investments in artificial intelligence.
Philippe Laffont, founder and portfolio manager of Coatue Management, a U.S. investment management firm that manages approximately $70 billion in assets, stated that the current situation differs significantly from the dot-com bubble era, a difference he calls "megascale advantage," referring to factors including Microsoft. Alphabet and Amazon The scale advantage possessed by companies including [those mentioned above].
Wall Street estimates suggest that their investment in artificial intelligence could exceed $500 billion next year.
General Atlantic manages $118 billion in assets Bill Ford, chairman and CEO of General Atlantic, also believes that the current market focus on the dollar effect is precisely why people are optimistic about large-cap listed tech stocks rather than skeptical of them. He stated, "Large publicly traded companies and existing businesses are driving the AI revolution; they have an advantage."
Laffont also emphasized that the current situation is vastly different from that of 2000. He stated that during the dot-com bubble, "all the money came from IPOs and new companies with rather dubious business models." Today, he points out, the largest publicly traded tech companies are on track to generate nearly $1 trillion in free cash flow annually, with virtually no debt.
He further explained that most companies in the market, even those that can generate free cash flow, are “carrying a lot of debt,” which restricts their investment choices.
But the situation is different for top tech companies. He said, "These investments are made by companies with real boards of directors and return on capital requirements, so I think the whole system is quite healthy and the leverage implied in the system is very low. I will keep an eye on it, but if you ask me 'Am I worried?', I'm not worried right now."
Ford stated that the investments these large publicly traded companies make in each other—the much-discussed so-called "circular AI economy"—are a positive phenomenon. His view is based on the belief that, in addition to current revenue and profit support, these companies believe they possess "truly significant opportunities" on the other end of the spectrum.
“They’re all vying for a very big prize, and now investment is needed to win. The most surprising thing about the valuation growth of the Big Seven is the continued growth in earnings. This doesn’t mean the price-to-earnings ratio has doubled or tripled, but that the profitability is real,” he added.
Coincidentally, JPMorgan Chase... Mary Callahan Erdoes, CEO of an asset and wealth management company, recently stated that investors should focus on future opportunities brought about by artificial intelligence, rather than the current question of whether a bubble exists.
"Simple math problems"
Alex Morris, CEO and Chief Investment Officer of F/m Investments, stated that artificial intelligence remains the strongest long-term driver of the market. The short-term dynamics behind last week's sell-off were more mechanical than fundamental.
“I think it’s just a simple math problem. AI stocks have a very high weighting. Once they start to decline, given how heavily they are weighted in the index, the average share price will naturally fall more than you would expect,” he said.
Morris emphasized that the decline was not entirely due to a slowdown in the momentum of artificial intelligence. He pointed out that profit-taking and preparation for the next quarter's performance were the main driving factors, especially given that expectations remained high.
“Despite strong earnings and the prospect of continued strength, market expectations are even higher. Furthermore, there’s a ripple effect: when more than a third of the companies in the index experience slight fluctuations, the rest will certainly be affected,” he added.
Profitability is key
This is why profitability has become a key pillar of market resilience. So far, most companies have met these high expectations. Barclays bank "S&P 500 earnings margins have expanded to record highs in the third quarter of 2025," strategist Venu Krishna wrote in a report to clients, with net profit margins growing by 14.2%, the highest level in at least 25 years.
According to FactSet data, among the 92% of companies that have released their earnings, 82% of them exceeded earnings per share expectations, and the overall earnings growth rate in the third quarter was 13.1%, on track for the fourth consecutive quarter of double-digit growth.
Finally, it's worth noting that this strong momentum isn't solely driven by large tech companies. Nine of the eleven sectors in the S&P 500 saw year-over-year earnings growth and steady revenue increases, with 76% of companies exceeding expectations.
(Article source: CLS)
