Financial markets received a sharp wake-up call on Tuesday following a sudden wave of selling in major technology shares, triggering widespread doubt over the sustainability of the AI boom.

The tech-focused Nasdaq index fell about 3% by the close of trade alongside international chipmakers, reigniting fears that dizzying market valuations have finally run out of momentum after a relentless three-month climb.

At the same time, the newly public SpaceX has faced an incredibly choppy session. The aerospace giant’s share price plunged below the $150 (£114) mark–its initial flotation price–before staging a modest recovery to close at $156 despite broader market anxiety.

For months, international stock exchanges have climbed on pure optimism. While this enthusiasm repeatedly pushed indices to unprecedented highs, the sustained 90-day rally left stock prices looking incredibly inflated.

On Tuesday, that upward drive vanished as market watchers questioned whether actual corporate adoption of AI can truly justify such expensive price tags.

The downturn hit semiconductor players such as Nvidia and Intel the hardest, causing a primary index of global chip firms to slide.

This turnaround follows a period in which the wider tech sector has more than doubled stock prices from cyclical lows in 2022. It suggests that investors may have moved far too quickly to fund the hardware behind the AI shift.

The anxious mood quickly spread to other high-profile assets. Elon Musk’s newly public aerospace firm was caught in the crossfire.

Texas-based SpaceX has endured a highly volatile trading session since going public on 12 June, proving just how vulnerable newly listed companies are when general tech sentiment turns sour.

The stock dropped past its widely watched $150 opening price early in the day. However, it managed a slight rebound, settling around $156.

Some optimistic traders interpreted the quick bounce as a sign of steady underlying interest in the commercial space sector.

Conversely, sceptics argue that these massive price swings only expose the highly speculative nature of today’s market.

Market analysts are now split on the next move.

They disagree on whether this sell-off is merely a healthy, temporary pause or the start of a much larger retreat for tech investments.

The more optimistic view suggests that taking profits is a completely standard reaction following a historic run.

Bank of America’s Vivek Arya supported this perspective. In a note to clients, Arya argued that the combination of sticky inflation and strengthening demand will ultimately drive sector forecasts higher.

According to Arya, the industry is simply transitioning from a phase in which it had to defend its initial return on investment to one focused on addressing physical infrastructure and power constraints.

However, a growing number of sceptics counter that, saying cooling corporate IT budgets and broader economic pressures mean the period of easy market gains is over.

Reflecting the shift, Danni Hewson, head of financial analysis at AJ Bell, noted that the relative lack of tech stocks on London markets helped the FTSE 100 stay in positive territory, even as Wall Street buckled.

As the trading week continues, Wall Street will be closely watching upcoming corporate earnings. That suggests tech giants must prove their massive AI investments are generating real profits rather than just marketing buzz.