The AI trade is wobbling. A two-day tech rout has erased more than $400 billion in market value as investors demand proof that massive capital spending on artificial intelligence will generate profits, triggering a rotation into defensive value plays like Berkshire Hathaway.
The Nasdaq Composite fell 1.6% to 25,758 by midday Tuesday, extending a selloff that has erased more than $400 billion from the tech sector after investors began questioning whether artificial intelligence investments will generate the profits needed to justify lofty valuations.
"The market treated AI spending as unquestionably positive for a long time, but investors are now becoming more demanding," Nigel Green, chief executive officer of deVere Group, said. "They want evidence that unprecedented spending will translate into unprecedented profits."
The selloff accelerated Monday when the Nasdaq dropped 1.3% to 26,166.6 and the S&P 500 fell 0.4% to 7,472.79, while the Dow Jones Industrial Average rose 0.3% to 51,712.71. Communication Services led the decline with a 3.8% drop, followed by Consumer Discretionary at 2.3%, as Real Estate gained 1.4% in a defensive rotation. The CBOE Volatility Index climbed 3% to 17.28, and trading volume reached 22.97 billion shares, above the 20-session average of 22.12 billion. Decliners outnumbered advancers by a 1.32-to-1 ratio on the NYSE.
The selloff spread globally Tuesday, with South Korea's Kospi tumbling 10% to 8,203.84 as regulatory scrutiny in the semiconductor sector compounded the AI spending concerns. The U.S. 10-year Treasury yield edged lower as investors sought safety, while the dollar index held steady near recent levels.
Why Berkshire Hathaway stands to benefit
The rotation out of growth and into defensive value has put Berkshire Hathaway Inc. in focus. The conglomerate's diversified portfolio of insurance, utilities, railroads, and consumer goods — combined with its $325 billion cash pile — positions it as a natural beneficiary when investors flee high-multiple tech names for stable earnings and tangible assets. Berkshire's Class A shares have historically outperformed during periods of tech sector stress, and its insurance float provides a durable funding advantage that pure-play tech companies lack.
"Today's big falls in tech stocks without any major catalyst are another illustration of rising volatility in these stocks, a result of what increasingly looks like frothy earnings expectations and valuations," James Reilly, senior market economist at Capital Economics, said. "If the new market leaders, semiconductor firms, also start to struggle, the stock market would be in big trouble."
SpaceX shares fell 16.4% Monday — their steepest single-day decline — after the company launched its first-ever debt offering, raising concerns about future financing needs despite holding approximately $100.8 billion in cash. The stock rebounded 5.7% to $163.41 Tuesday but remains well below its post-IPO peak above $200. Nvidia fell 2.8%, Broadcom dropped 2.3%, and Alphabet declined 1.1% during midday trading Tuesday. Meta Platforms and Microsoft have entered bear market territory, defined as a drop of at least 20% from their most recent highs.
The selloff marks a sharp reversal from the first half of 2026, when AI-related stocks powered the broader market to record highs. The shift in sentiment has been driven by growing scrutiny of capital allocation: companies are committing unprecedented amounts to data centers, chips, and computing networks without clear visibility into the timing and magnitude of returns. For investors rotating into defensive positions, Berkshire Hathaway's insurance underwriting income, regulated utility earnings, and BNSF railway's pricing power offer a contrast to the binary outcomes of AI infrastructure bets.
This article is for informational purposes only and does not constitute investment advice.
