Artificial intelligence stocks, including Palantir Technologies Inc (NYSE:PLTR), Nvidia Corp (NASDAQ:NVDA, ETR:NVD) and Advanced Micro Devices Inc (NASDAQ:AMD, ETR:AMD), traded lower on Wednesday amid a broader tech-sector selloff, highlighting growing investor caution after an extended run-up in valuations.
Palantir led the declines, tumbling 7.5% in early trading after a 9% drop on Tuesday, to trade hands at about $145.
The reversal was attributed to profit taking, concerns about stretched valuations, and shifting investor sentiment toward defense-linked AI companies.
Easing US-China tensions and progress in talks to resolve the Russia-Ukraine conflict have tempered enthusiasm for Palantir’s defense-heavy business model.
Sentiment was further pressured by a Citron Research report arguing Palantir is overvalued given its reliance on long-term government contracts versus more scalable AI subscription models.
Meanwhile, Nvidia was down 3.1% at $170 while Advanced Micro Devices was down 3.9% at $160.
Both companies have benefited from market enthusiasm around AI, but face pressure as investors rotate out of high-growth names after steep stock gains into more defensive sectors, with rising interest rates and macroeconomic uncertainty weighing on sentiment.
Still, Wedbush analysts argued that sell-offs such as Wednesday’s should be seen as opportunities to own “the core winners.”
“Skeptics of the tech rally will be proven wrong (again) as AI use cases multiply,” the firm wrote, emphasizing that the current cycle is fueled by “the biggest transformational tech spending cycle in the last 40 years.”
The analysts pointed to Nvidia’s central role in the AI ecosystem ahead of its August 27 earnings report, noting that demand for its chips still outpaces supply by a ratio of 10 to 1.
“There is one chip in the world fueling the AI Revolution and that is Nvidia,” Wedbush wrote, adding that recent developments around partial reopening of US chip exports to China could be “very bullish” for Nvidia and AMD.
Wedbush also highlighted growing global AI investment beyond US tech giants, with countries such as Saudi Arabia and the UAE committing to build out massive AI-driven data centers.
The firm said companies like Palantir could “grow into their valuations over the coming years,” predicting that its AI-driven platforms could support a market cap of $1 trillion within the next two to three years.
While bears continue to warn about overheated valuations, Wedbush maintained that investors focusing only on near-term multiples risk missing long-term winners.
The firm reiterated its view that the current pullback is a “healthy” correction within a multi-year AI bull market, projecting the cycle will remain intact for at least another two to three years.