Wall Street Wobbles as AI Darlings Take a Hit and Correction Fears Loom

A Dose of Reality Hits Wall Street

After a remarkable rally since April, Wall Street finally hit a speed bump. The Dow Jones slipped 0.55%, while the Nasdaq Composite tumbled more than 2%, its worst day in weeks.

And let’s be honest, with the Nasdaq up 22% year-to-date, a little cooling-off was long overdue.

Adding fuel to the selloff were some sobering remarks from the titans of finance. Ted Pick, CEO of Morgan Stanley (MS), warned investors to brace for a possible 10–15% market correction, not because of a looming crisis, but simply due to “overstretched valuations.”

To make matters worse, the latest ISM manufacturing index came in at 48.7, signaling an eighth straight month of contraction in factory activity. And with Fed Chair Jerome Powell reminding everyone last week that a December rate cut is far from guaranteed, traders had plenty of reasons to hit pause.

Palantir’s “Out of This World” Earnings Land Back on Earth

Palantir Technologies (PLTR | -7.94%) delivered what CEO Alex Karp boldly described as "extraterrestrial" results: 63% revenue growth and net income tripling to $476 million.

That didn’t stop investors from punishing the stock. Despite phenomenal growth, Palantir’s eye-watering 300x forward P/E ratio was simply too hard to ignore. After soaring 170% this year, the selloff looked more like a healthy reality check than panic.

Still, not everyone is fleeing the ship. Wedbush analyst Daniel Ives reiterated his bullish stance, calling the dip a “buying opportunity” and raising the target price to $230, citing Palantir’s central role in the “AI revolution.”

Uber’s Strong Quarter, Weak Outlook

Uber Technologies (UBER | -5.06%) also reported better-than-expected Q3 results, revenue up 20% to $13.47 billion, rides up 22% to 3.5 billion, and net profit soaring to $6.62 billion. Unfortunately, the forecast was where things got bumpy.

Uber’s projected Q4 EBITDA range of $2.41–$2.51 billion fell just short of Wall Street’s midrange expectations, sparking disappointment among investors. The message was clear: in this market, “good” isn’t good enough when expectations are sky-high.

AI Mania Faces Its First Crack

The day wasn’t kind to AI heavyweights. Nvidia (NVDA | -3.96%), Intel (INTC | -6.25%), and Qualcomm (QCOM | -4.36%) all slid as enthusiasm around artificial intelligence cooled. According to Jefferies, the AI trade is now “extremely valued and highly vulnerable” to sentiment shifts.

Even Amazon (AMZN | -1.84%) - fresh off a record close following its $38 billion AI partnership with OpenAI - couldn’t escape the downdraft.

To make things worse (or better, depending on your contrarian streak), none other than Michael Burry, of The Big Short fame, disclosed fresh put options against both Nvidia and Palantir through his fund, Scion Asset Management.

His bet? That the AI boom has turned into a bubble. Déjà vu, anyone?

Harley-Davidson Feels the Chill

Outside the AI universe, Harley-Davidson (HOG | -6.46%) reported higher profits but weaker-than-expected demand for motorcycles. Economic uncertainty and global import tariffs have cooled enthusiasm among consumers, leaving investors unimpressed despite operational improvements.

t’s yet another sign that discretionary spending remains sensitive in a slowing economy.

Yum! Brands Finds a Way to Please Investors

In contrast, Yum! Brands (YUM | +7.3%) surprised the Street with stronger earnings, even as Pizza Hut continues to struggle.

The company is reportedly exploring “strategic alternatives” for the brand, which might include divestitures or restructuring. That hint of corporate action, paired with solid results from KFC and Taco Bell, was enough to whet investor appetite.

A Market That’s Starting to Second-Guess Itself

After months of unbridled optimism, Tuesday’s selloff felt like a collective deep breath. Investors are finally asking whether the AI-driven rally has sprinted too far ahead of fundamentals.

From my vantage point, this looks more like a tactical pause than a structural breakdown, a needed cooldown after an overheated run. But as history shows, when traders start uttering the word “correction” in unison, markets tend to listen.

Looking Ahead:

Eyes will be on Powell’s next comments and any fresh inflation data later this week. If economic numbers soften and the Fed maintains its cautious tone, the market might just rediscover its appetite for risk.

Until then, buckle up, volatility seems ready to make a comeback.

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Kristoff - ChartMill

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