Finance

AI Rally Fatigue? Why Tech Stocks Plunged, Job Cuts Soared, and What’s Next for Investors

U.S. stocks fell sharply as AI valuations concerns and weak labor data fueled a tech sell-off, impacting major indices.

November 7, 2025, 7:55 AM

Stressed crypto trader with his head in his hand, facing multiple volatile market monitors.

A crypto trader is highly stressed while analyzing volatile stock exchange and crypto charts. By Hryshchyshen Serhii / Shutterstock.com.

Executive Summary

U.S. equities experienced a broad decline, with major indices falling amid renewed investor concerns over stretched artificial intelligence (AI) valuations and a significant tech sell-off.

U.S. employers announced 153,074 job cuts in October, the highest figure for that month since 2003, raising investor worries about the labor market.

President Donald Trump announced a plan for Medicare to cover GLP-1 weight-loss drugs for as little as $50 a month under a new government deal, influencing pharmaceutical stock movements.

The Story So Far

The current market downturn, marked by a broad decline in U.S. equities and a tech sell-off, stems from renewed investor concerns over stretched artificial intelligence valuations and generally elevated stock prices. This cautious sentiment is further fueled by weakening labor market data, including a significant increase in job cuts, and an unforgiving earnings season where companies missing expectations face severe stock plunges, all set against a backdrop of persistent inflation eroding household savings and contributing to broader economic uncertainty.

Why This Matters

The recent market downturn, driven by investor fatigue with AI valuations and a significant tech sell-off, signals a shift towards a more cautious investment environment, particularly for companies failing to meet elevated expectations. This caution is amplified by a notable increase in U.S. job cuts, suggesting a potential weakening of the labor market and broader economic vulnerability. These challenges are compounded by persistent inflation, which has eroded household savings and left a majority of Americans living paycheck to paycheck, pointing to ongoing financial strain for consumers and a challenging economic outlook.

Who Thinks What?

Investors are concerned about stretched artificial intelligence (AI) valuations, weakening labor market data showing increased job cuts, and an unforgiving earnings season where companies missing expectations are heavily penalized.

President Donald Trump announced a plan for Medicare to cover GLP-1 weight-loss drugs, including Wegovy, Ozempic, and Mounjaro, for as little as $50 a month through new government deals and specific programs.

American households are experiencing significant financial strain due to persistent inflation, with many lacking adequate emergency savings and a growing percentage living paycheck to paycheck.

U.S. equities experienced a broad decline on Thursday, with major indices falling amid renewed investor concerns over stretched artificial intelligence (AI) valuations and weakening labor market data. The Nasdaq Composite plunged 1.9%, the S&P 500 lost 1.1%, and the Dow Jones Industrial Average slipped 0.8%. This downturn broke a brief rebound and occurred on the 36th day of the U.S. government shutdown.

Market Downturn and Tech Sell-Off

The sell-off particularly impacted large-cap technology stocks, with Palantir sinking 6.8%, Nvidia falling 3.7%, and Amazon losing 2.9%, collectively erasing billions in market value. Analysts suggested that the AI rally, which had propelled markets for months, is now facing fatigue as recent earnings reports have not consistently met elevated expectations.

Tesla shares dropped 3.5% ahead of a crucial shareholder vote on CEO Elon Musk’s compensation package and other governance proposals. Investors appeared cautious regarding Musk’s influence and the automaker’s recent delivery challenges.

Job Market Concerns

Market sentiment turned more cautious following data from Challenger, Gray & Christmas, which revealed U.S. employers announced 153,074 job cuts in October. This figure marks the highest for that month since 2003, raising investor worries that the labor market, a previously strong point of the economy, might be showing cracks. With limited economic data available due to the ongoing government shutdown, traders are closely monitoring private-sector reports for economic indicators.

Company-Specific Performances

While most tech giants stumbled, Datadog emerged as a notable outperformer, soaring 23% after reporting strong quarterly results. The cloud monitoring firm posted third-quarter earnings per share of $0.55, exceeding analyst estimates, with revenue climbing 28% year-over-year to $885.7 million, driven by AI-related customer growth. The company also raised its full-year earnings per share and revenue forecasts, cementing its position as a significant AI software player.

Conversely, dating app Bumble saw its shares crash 25% after reporting a 16% decline in total paying users to 3.57 million and a 10% drop in revenue to $246.2 million. Management issued a warning of weak fourth-quarter projections, pushing Bumble’s year-to-date losses to nearly 50%.

Unforgiving Earnings Season

This earnings season has proven particularly challenging for underperforming companies. FactSet data indicated that companies missing expectations saw their stocks plunge an average of 5% around earnings days, nearly double the five-year average of 2.6%. Even firms that surpassed forecasts gained only 0.1%, significantly below historical norms, underscoring investor fatigue with elevated valuations and interest rate uncertainty.

Broader Market Indicators

In the broader market, Treasury yields softened, with the 10-year yield falling to 4.09% from 4.16%. The U.S. dollar index weakened 0.5% to 99.69, reflecting decreased confidence in the greenback. Bitcoin steadied at $100,900 after briefly touching $104,200 earlier in the day, remaining near the $100,000 mark it breached earlier in the week. Gold held just below $4,000 an ounce, while West Texas Intermediate crude traded near $59.55 a barrel.

Policy Developments

On the policy front, President Donald Trump announced a plan for Medicare to cover GLP-1 weight-loss drugs, including Wegovy, Ozempic, and Mounjaro, for as little as $50 a month under a new government deal. The agreement with Novo Nordisk and Eli Lilly sets wholesale prices at $245 per month, with further discounts available through the TrumpRX.com program, where Ozempic and Wegovy will sell for $350. Following the announcement, Pfizer gained 1% on reports it might increase its offer to acquire Metsera, whose stock jumped 14%. Novo Nordisk dropped 4%, while Eli Lilly rose 1%.

Household Financial Strain

Rising inflation continues to exert pressure on American households. A Federal Reserve survey indicated that 45% of U.S. workers lack adequate emergency savings. Additionally, PNC Bank’s 2025 report found that 67% of Americans now live paycheck to paycheck, a four-point increase from 2024. Pandemic-era savings have largely eroded due to persistent inflation, with data from the Bureau of Economic Analysis showing savings from disposable income have fallen below pre-pandemic levels.